UK Economy Shows Resilience in Q1

Main points

• Monthly GDP remained flat in February 2023, following growth of 0.4 per cent in January (revised upwards from 0.3 per cent). This monthly figure was driven by growth in construction – enabled by good weather conditions in February – being offset by contractions in services and production. The services sector was particularly affected by decreases in education and public administration activities resulting from industrial action.
• GDP grew by 0.1 per cent in the three months to February relative to the previous three months. As shown in figure 1 below, the UK economy has largely flatlined following the initial stages of post-pandemic recovery; today’s monthly GDP is estimated to be only 0.3 per cent above its pre-pandemic (February 2020) level.
• We estimate that GDP grew by 0.1 per cent in the first quarter of 2023, an improvement on our previous forecast of -0.1 per cent, though in line with our expectation that upward risks would emerge. Indeed, higher-frequency data, including the S&P Global/CIPS UK PMIs as well as spending and hiring indicators indicate the UK economy experienced stable low growth over the course of Q1. Our early forecast for the second quarter of 2023 sees this quarterly growth rate increasing to 0.3 per cent.

“Today’s ONS figure suggests that monthly GDP remained flat in February following growth of 0.4 per cent in January, as a boost in construction was offset by contractions in the services and production sectors. Encouragingly, GDP grew by 0.1 per cent in the three months to February compared to the three months to November. Paired with optimistic PMI balances and higher-frequency spending data, the UK economic outlook for the first quarters of this year appears to be more resilient than previously thought, though broadly consistent with the longer-term trend of flatlining economic growth.”

Paula Bejarano Carbo,
Associate Economist, NIESR