Discover what’s driving the global economy and what it means for policy makers, businesses, investors and you with The New Economy Daily. Sign up here.
The U.K. economy gained momentum in March as Britons geared up for the lifting of coronavirus restrictions.
Gross domestic product rose a stronger than expected 2.1% following a revised 0.7% increase in February, the Office for National Statistics said Wednesday. The economy shrank 1.5% in the first quarter due to a sharp contraction in January, when a fresh lockdown was imposed to fight the virus.The pickup sets the stage for a rapid recovery from the deepest slump in three centuries. Surveys show companies stepping up investment and households starting to splurge savings accumulated during the pandemic. A brighter outlook has shifted the debate among economists from the possibility of negative interest rates to the question of when the Bank of England might start to tighten policy.
"March is a promising sign of things to come,” Chancellor of the Exchequer Rishi Sunak said in a statement. "The U.K. economy is in a strong position to grow quickly as we emerge from the pandemic.”
A separate government report showed post-Brexit damage to U.K. merchandise trade with the European Union partially recovered over the first three months since the formal split.
U.K. goods exports to the EU rose 8.6% in March from a month earlier, while imports from the bloc increased 4.5% -- both driven by cars, the ONS said. Imports fell 13.9% in the first quarter, almost double the pace expected, and exports dropped 7.5%. Business investment fell 11.9%, much more than economists had predicted.In an upbeat assessment last week, the central bank predicted the strongest year of growth since World War II, with GDP returning to its pre-pandemic level by the end of 2021. That assumes most remaining curbs on public life are removed by June 21, as Prime Minister Boris Johnson’s government plans. One official wanted the bank to scale back its bond-buying program.
"The first quarter should mark the low point for the economy in 2021,” said Tej Parikh, chief economist at the Institute of Directors. "The lion’s share of the U.K.’s rapid recovery in the coming quarters will be led by consumers, with pent-up demand likely to drive retail, leisure, and hospitality spending.”I
The pandemic has hit the U.K. harder than its Group of Seven peers, and GDP in the first quarter was still 8.7% below its level at the end of 2019, before the crisis struck.
The reopening of the economy is being made possible by a rapid immunization program that has now delivered one dose of a vaccine to almost 70% of the adult population. Non-essential stores welcomed back customers in April and indoor hospitality and the entertainment sector are set to follow suit on May 17.
In March, output rose across the board, with construction jumping by 5.8%. Services by 1.9%, lifted by retail sales and output from education after schools reopened at the start of March.
The strength of the recovery will depend on the willingness of households to save less of their income and spend the huge amount of cash piled up in bank accounts. The BOE is taking an optimistic view and sees the economy expanding by around 4% in each of the second and third quarters.The modest fall in output in the first quarter provides further evidence that businesses and consumers have learned to adapt to lockdown curbs. GDP shrank almost 20% during the first shutdown last spring.
