Live updates: follow the latest news on Russia-Ukraine
Britain's economy rebounded much more than expected in January, when the number of infections caused by the Omicron coronavirus variant eased, but the war in Ukraine darkens the outlook.
Gross domestic product grew 0.8 per cent on the month in January after a 0.2 per cent decline in December — the strongest monthly expansion since June, according to the Office for National Statistics — with soaring inflation raising the spectre of an interest-rate increase next week.
While January's growth means the economy is now 0.8 per cent bigger than its pre-pandemic peak in February 2020, with growth set to continue in February, economists expect tougher times ahead.
“Conflict in Ukraine is putting considerable pressure on energy and commodity prices, which, if sustained, will push inflation even higher than expected,” said Alpesh Paleja, lead economist at the Chamber of British Industry.
“The need to press ahead with deploying new power generation — through renewables, nuclear and increasing storage capacity — remains acute.”
While the British economy appears stronger than its pre-pandemic size, it remains about 4 per cent smaller than it would have been if it had continued growing at its trend rate for the last decade, according to Reuters.
The ONS said output would be about 1.2 per cent below its pre-pandemic size if extra spending on health care was stripped out.
In January, hospitality venues gained from a spurt of pent-up demand following the mass cancellation of events before Christmas, with a surge of business in what is typically the quietest month of the year.
“Output for food and beverage activities jumped 6.8 per cent, with revellers shrugging off the shock of Omicron and celebrating once more. That helped the overall consumer-facing services sector grow 1.7 per cent,” said Susannah Streeter, a senior investment and markets analyst at Hargreaves Lansdown.
“Building sites also whirred busily in January, with construction rising by 1.1 per cent, while the wholesale and retail trade lifted 2.5 per cent and was the main contributor to January’s growth in services.”
However, the biggest driver of growth was human health and social work activities, as the high demand for extra healthcare services ramped up while consumer-facing services are still 6.8 per cent below pre-crisis levels and output from the production sector is 2 per cent below, Ms Streeter said.
Responding to the data, Chancellor of the Exchequer Rishi Sunak said the Russia-Ukraine conflict had raised uncertainty around the economic outlook.
“We have provided unprecedented support throughout the pandemic, which has put our economy in a strong position to deal with current cost of living challenges,” he said.
“We know that Russia’s invasion of Ukraine is creating significant economic uncertainty and we will continue to monitor its impact on the UK.”
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This satellite image provided by Maxar Technologies shows destroyed and burning warehouse buildings in Stoyanka, Ukraine, in the western Kyiv region, during the Russian invasion. AP -
Children shelter in a metro station in Kharkiv. Moscow said on March 10, 2022, that it will open daily humanitarian corridors to allow civilians fleeing fighting in Ukraine to reach Russian territory, despite Kyiv insisting that no evacuation routes should lead to Russia. AFP -
Russian President Vladimir Putin during a videoconference meeting with government members at the Kremlin in Moscow. The meeting focuses on minimising the effects of sanctions on the Russian economy. Russian troops entered Ukraine on February 24, prompting the country's president to declare martial law and triggering a series of severe economic sanctions imposed by western countries. EPA -
Rescuers work among remains of buildings damaged by an air strike in Dnipro, Ukraine, as Russia's attack on the country continues. Reuters -
Members of the National Guard of Ukraine, Oleksandr and Olena, listen to a priest at their wedding in Ukraine. Reuters -
People fleeing Russia's invasion of Ukraine warm up by a fire near the train station in Lviv, Ukraine. Reuters -
Russian forces rolled their armoured vehicles up to the northeastern edge of Kyiv, edging closer in their attempts to encircle the Ukrainian capital. AFP -
A woman covers herself with a blanket near a damaged fire truck after shelling in Mariupol, Ukraine. AP Photo -
A Ukrainian soldier hides from a helicopter air strike near Demydiv, Ukraine. Reuters -
Ukrainian soldiers walk past a monument of the city founder Duke de Richelieu, covered with sand bags for protection, in Odessa, Ukraine. Reuters -
Russian Foreign Minister Sergey Lavrov, left, Turkish Foreign Minister Mevlut Cavusoglu, centre, and Ukranian Foreign Minister Dmytro Kuleba. EPA -
Russian Foreign Minister Sergey Lavrov in talks with Ukrainian counterpart Dmytro Kuleba during a tripartite meeting chaired by Turkish Foreign Minister Mevlut Cavusoglu, in Antalya, Turkey. AP -
Russian Foreign Ministry spokeswoman Maria Zakharova speaks to the media as the foreign ministers of Ukraine, Russia and Turkey hold talks in Antalya, 15 days after Russia launched a military invasion on Ukraine. AFP -
A Ukrainian serviceman says goodbye to his girlfriend before departing in the direction of Kyiv at the central train station in the western Ukrainian city of Lviv. AFP -
Valerii Sushkevych, president of the Ukraine National Paralympic Committee, and the Ukraine delegation raise their fists and pose with a banner at the Beijing 2022 Winter Paralympic Games. Reuters -
A member of the Ukrainian team cries during a moment of silence at the Zhangjiakou athletes village during the Beijing 2022 Winter Paralympic Games. AFP -
Turkish Foreign Minister Mevlut Cavusoglu, right, and Ukraine Foreign Minister Dmytro Kubela, second left, in Antalya, Turkey. AFP -
A man is supported after crossing the Irpin river while fleeing the town of Irpin, Ukraine. AP -
People are helped out of a damaged children's hospital following a Russian air strike in the southeastern city of Mariupol, Ukraine. AFP -
A man rides a bicycle in front of an apartment building that was damaged by shelling in Mariupol. AP -
A woman carries two babies after arriving at a triage point in Kyiv, Ukraine. AP -
A man hugs an elderly woman after crossing a damaged bridge as they flee from the frontline town of Irpin, near the Ukrainian capital of Kyiv. EPA -
Local residents cook at a makeshift camp next to a checkpoint in Kyiv. EPA -
Ukrainian men chop wood at a makeshift camp next to a checkpoint in Kyiv. EPA -
A member of the Territorial Defence Forces learns how to use a Javelin missile during a training session in Kyiv. EPA -
Members of the Territorial Defence Forces learn how to give first aid during the training session. EPA -
A woman rescued from the outskirts of Kyiv holds a plate of food after arriving at a triage point in the Ukrainian capital. AP -
A woman cries after arriving at the triage point in Kyiv. AP -
Civilian vehicles drive past a destroyed Russian tank as they leave Irpin. AP -
Ukrainian servicemen stand in a foxhole in Irpin. AP -
People gather on a platform to board a train leaving Odesa after the US said Russian troops are making preparations to attack the city. AFP -
A Ukrainian woman looks for food in a bin in Odesa's city centre. AFP -
Ukrainian servicemen look towards Russian positions outside the city of Brovary, east of Kyiv. AFP -
A man walks past a shelled house at the village of Velyka Dymerka, east of Kyiv. AFP -
A Ukrainian serviceman stands at a check point in the vilage of Velyka Dymerka east of Kyiv. AFP -
A Ukrainian woman plays with her child in a temporary refugee shelter in Przemysl, Poland. Reuters -
A woman waits outside a maternity and children's hospital damaged by shelling in Mariupol, Ukraine. AP -
A pregnant woman leaves the hospital after she was wounded when it was bombed. AP -
A woman waits outside the damaged hospital in Mariupol. AP -
A man wounded by shelling in Mariupol. AP -
A car burns after the destruction of the children's hospital in Mariupol. Reuters -
A mortuary worker wheels a stretcher used to move dead bodies before they are buried on the outskirts of Mariupol. AP
Last month, the Bank of England said the economy was on track to grow by about 3.75 per cent this year, with inflation peaking at about 7.25 per cent in April. However, those forecasts have already been eclipsed by the inflationary consequences of Russia's invasion of Ukraine for financial markets and international trade.
"The cost of living crisis and the influence of the war in Ukraine probably means this is as good as it gets for the year,” said Paul Dales, chief UK economist at consultancy Capital Economics.
Inflation is now expected to gallop past the 8 per cent mark, with some economists even predicting double digit readings of 10 per cent or more.
With that in mind, BoE policymakers are expected to raise interest rates next week for the third time in the space of three months.
“Given the escalating situation, with fresh sanctions being placed on Russian oil exports and severe disruptions to other commodities, which is set to weigh on businesses and consumers, policymakers are expected to limit the rise to 0.25 per cent, pushing the bank rate to 0.75 per cent,” said Ms Streeter.
“The aim will be to try to dampen demand but not squeeze this new spurt life out of the economy, at a time of increased uncertainty.”
UK shares rose on Friday following the better-than-expected economic growth, with the mid-cap index on course for its best weekly performance in more than a year.
The blue-chip FTSE 100 index gained 0.8 per cent in early trading, rising 2.5 per cent so far in the week. The FTSE mid-cap index climbed 1.1 per cent and was on track for its best week since February 2020.
Energy stocks were up 2.1 per cent, rising 5.8 per cent so far this week, supported by a rally in crude oil prices after Russia's invasion of Ukraine.
