The UK economy starts 2023 weakening under the weight of inflation

Written by David Milliken and Andy Bruce

LONDON (Reuters) – The British economy started 2023 weakly as inflation weighed on household disposable income, official data showed on Friday.

The figures released on Friday were not revised in relation to the National Statistics Agency's preliminary estimate of 0.1% GDP growth in the first three months of 2023 compared to the previous quarter, leaving output at 0.5% lower than in the last quarter of 2019, before the pandemic hit. Covid-19.

Households have tapped into their savings – although the overall savings rate is still higher than before the pandemic – and the cost of living has risen more quickly than income.

The pressure on households is likely to continue with the Bank of England raising interest rates to 5% in June, the highest level in 15 years, and investors see little sign that it is about to end the tightening cycle with inflation remaining higher than expected.

“Final GDP data for the first quarter of 2023 confirm that the economy has avoided a recession in early 2023. But with about 60% of the burden of rising interest rates not yet felt, we still believe the economy will enter a recession next year.” “The second half of this year,” said Ashley Webb, a British economist at consultancy Capital Economics.

The UK's economic recovery since the Covid-19 pandemic has been much slower than almost every other major advanced economy, although Germany has also suffered and its economy in the first quarter was 0.5% smaller than before the pandemic.

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