Economy records best reading since Q4 2021 in the first quarter

GDP increased 0.6% on a seasonally adjusted quarter-on-quarter basis in the first quarter, contrasting the 0.3% contraction recorded in the fourth quarter of last year. Q1's reading marked an over two-year high and was well above market expectations, with the economy boosted by rising real wages and strong inward migration flows. Looking at monthly data, economic activity rose in month-on-month terms throughout Q1. On an annual basis, GDP expanded 0.2% in Q1, contrasting the previous quarter's 0.2% fall. Q1's reading marked the best result since Q2 2023.

Private consumption grew 0.2% seasonally-adjusted quarter-on-quarter in the first quarter (Q4 2023: -0.1% s.a. qoq). Government spending accelerated somewhat to a 0.3% expansion in Q1 (Q4 2023: +0.1% s.a. qoq). Fixed investment growth accelerated to 1.4% in Q1, from the 0.9% increase in the previous quarter. On the external front, exports of goods and services dropped at a quicker pace of 1.0% in Q1 (Q4 2023: -0.8% s.a. qoq). In addition, imports of goods and services contracted at a sharper rate of 2.3% in Q1 (Q4 2023: -0.3% s.a. qoq).

Our Consensus is for the economy to continue to expand in the second quarter, albeit slightly more slowly than Q1’s bumper reading, thanks to ongoing growth in private and government spending and a rebound in exports.

On the outlook, ING’s James Smith said: “The bottom line is that the economy is entering a brighter period. The timing of the March bounce provides a nice starting point for the second quarter, where growth could easily come in at 0.4% or 0.5%. The main unknown is the jobs market. We know both from the job vacancies numbers that the market is cooling, but data reliability issues make it hard to say how far this is translating into higher unemployment.” Goldman Sachs analysts commented: “Uncertainty around the underlying growth pace in March is higher than usual given the timing of Easter. The ONS’ seasonal adjustment process does adjust for the timing of the Easter weekend but, as the ONS noted in 2018, it is uncommon for the Easter weekend to fall between March and April, complicating the seasonal adjustment process. Nonetheless, today's numbers point to stronger growth momentum at the start of the year. Folding in today's data, we raise our 2024 annual growth forecast to 0.8% (from 0.6% previously).”

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