UK economy starts weak in 2023 under inflation weight Reuters

By David Milligan and Andy Bruce

LONDON (Reuters) – Britain’s economy started 2023 on a weak note as inflation hit households’ disposable income, official data showed on Friday.

The numbers released this Friday were unrevised based on the Agency for National Statistics’ preliminary estimate of 0.1% gross domestic product (GDP) growth in the three months to 2023 compared to the previous quarter, manufacturing 0, 5% lower than in the last quarter of 2019 before the Covid-19 pandemic.

Households have tapped into their savings — although the overall savings rate remains higher than before the pandemic — and the cost of living has risen faster than incomes.

The squeeze on households will continue as the Bank of England raised interest rates to 5% in June, a 15-year high, and investors see little sign of an end to its tightening cycle as inflation remains higher than expected.

“Final Q1 2023 GDP data confirms that the economy is avoiding recession in early 2023. But with about 60% of the weight of higher interest rates still unfelt, we still think the economy will slip into recession in the second half of the year,” Ashley Webb, Advisory Capital UK Economist on the Economy said.

The UK’s economic recovery after the Covid-19 pandemic has been much slower than that of all other major advanced economies, although Germany has also struggled and in the first quarter its economy was 0.5% smaller than before the pandemic.

On an annual basis, the British economy grew by just 0.2% in the first quarter.