Britain Shakes Off Recession as Economy Grows Faster Than Expected

Britain Shakes Off Recession as Economy Grows Faster Than Expected

In the first three months of the year, economic growth was driven by the services sector, which expanded for the first time in a year, statistics agency said. Transport services, legal services and scientific research all grew strongly, but services that include hotels and restaurants fell slightly, and the construction sector contracted sharply.

G.D.P. per person grew 0.4 percent in the first quarter, following seven consecutive quarters of decline.

Still, Britain’s economic data “is incredibly mixed,” said Tera Allas, director of research and economics at McKinsey’s Britain and Ireland office and a former economist in the civil service.Some sectors like professional services and technology have been doing well, but others like hospitality have struggled, she said.

The economic picture about consumers is “even murkier,” Ms. Allas added. Sentiment is negative and, by some measures, retail sales are down. But consumer spending has still been a key aspect of the country’s economic resilience. Household spending, adjusted for inflation, grew 0.2 percent, following two quarters of declines, the statistics agency said.

Some of that can be explained by the labor market. Even as interest rates are at their highest level in 16 years, slowing investment, and business bankruptcies have increased, unemployment has risen only modestly, to 4.2 percent in February, up from recent lows of 3.8 percent.

On Thursday, the National Institute of Economic and Social Research said it anticipated that the economic data on Friday would show that the recession was “in the rearview mirror” but warned that the longer term outlook for the economy was sluggish. Economists at the institute forecast growth of about 1 percent each year over the medium term.

The Bank of England said that the impact of higher interest rates and constrained public spending will weigh on the economy, and it forecast 0.5 percent growth this year. Even as policymakers said rate cuts were on their way, they plan to take a cautious approach, which suggests rates will go down slowly.

“There is no doubt it has been a difficult few years, but today’s growth figures are proof that the economy is returning to full health for the first time since the pandemic,” Jeremy Hunt, chancellor of the Exchequer, said in a statement on Friday.

A general election will take place within the next eight months, and the economy is among the top priorities, with both main political parties vowing to instigate growth. Rachel Reeves of the opposition Labour Party, accused the governing Conservative Party of “gaslighting” the British people about the economy improving.

In a speech this week, Ms. Reeves said claims the British economy had turned a corner “do not speak to the economic reality” as many people tell her they are struggling to pay bills or high rents or mortgage payments.

For many households, 2024 will also feel like they are emerging from a lengthy cost-of-living crisis. Although prices are still higher than they were before the pandemic, and are expected to stay that way, there has been some relief on consumers’ budgets. Averages incomes are rising faster than inflation, household energy bills are coming down, and the government has cut some taxes. On average, living standards, measured by household disposable income, will rise 6 percent this year from last year, the National Institute of Economic and Social Research said this week.

But the benefits are not shared among everyone. Households in the lowest income groups will see their living standards fall further as they contend with sharply rising rents, the institute said.

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