Recent data has shown the UK economy to be surprisingly resilient, with stronger growth than either the United States or the Eurozone. Adding to the good news, recent reports show that the economy grew by 0.7% in the first quarter of 2024, a higher-than-expected growth rate of 0.6%. March’s monthly GDP figures were surprisingly strong, with a reported increase of 0.2%, much stronger than expectations. This U-turn follows a streak of inertia, marking what could be the start of a reversal towards progress in the UK.
In recent months, the UK has been treated to unprecedented good news across a range of key economic indicators. The services sector—the largest part of the UK economy—was responsible for a monthly growth rate of 0.7%. The UK’s trade deficit was reduced by £3.6 billion. Perhaps the most welcome aspect of this change is the improvement in our trade dynamics. Exports are now increasing at a faster pace than imports. Taken together, these developments suggest a dramatic turn of fortunes in the UK’s economic future.
Positive Trends in Consumer Confidence and Investment
Consumer confidence, which was beginning to falter during the second-half of 2023, seems to be recovering. This restored confidence in the consumer base is an important ingredient for any economic expansion, as rising optimism usually leads to increased spending and investment. This increase in consumer confidence is reflected in the wider trend of rising investment levels across the UK. This renewed consumer enthusiasm is driving businesses to invest—all of which has put our overall economy on stronger footing and investment is happening in all sectors.
Additionally, government spending as a share of GDP has gone down, pointing to a trend of fiscal restraint. This reduction will open up space for private sector investment to thrive, resulting in robust economic development for years to come.
The construction sector was another bright spot in an otherwise dour economic performance. Construction output for March far surpassed expectations, a strong indicator of activity in this key sector. Additionally, growth from verticals such as car leasing and advertising are increasing rapidly. Together, these trends are signs that more and more sectors of our economy are getting ready for a more abundant and fruitful era.
Trade Dynamics and Economic Indicators
The reduction in the trade deficit by £3.6 billion shows that overall, the UK’s trade is becoming more positive and less negative—great news! Exports have really shot up compared to imports. This continued growth is a testament to the UK’s strong economic foundation and illustrates the increasing competitiveness of UK goods and services on the global stage.
Annual GDP growth has ticked back down to 1.3%. That’s a marginal drop from 1.5% in Q4 2023, but still a strong performance relative to other advanced economies. GDP per head increased by 0.5% too, following a series of quarterly falls and representing an absolute upturn in individual economic wellbeing.
The index of services — the best overall indicator of economic health — just had a stunning 0.4% increase in March. This was the huge surprise over the 0.1% expected rise. This indicates that the services sector is not just bouncing back but accelerating as the consumer driven demand strengthens.
Challenges Ahead and Future Outlook
While these are all encouraging signs, there are still huge question marks about if this growth is sustainable. Yet the UK economy has weathered remarkable headwinds in recent quarters. Inflationary pressures and geopolitical tensions now threaten to undermine its stellar past performance.
Yet, analysts are tentatively upbeat over the prospects for that growth. Consumer confidence has returned, and businesses have continued their investment streak. If this goes on, the UK stands a good chance of hardening its reputation as an outlier among advanced economies.