UK economy shows signs of growth after dipping into recession

Britain's GDP up by 0.2 per cent having been in recession in the second half of last year

The UK's services sector grew by 0.2 per cent in January and was the largest contributor to the rise in GDP. Getty Images

The UK economy showed signs of weak growth in January after entering a shallow recession in the second half of last year, according to figures from the Office for National Statistics.

Real GDP grew by 0.2 per cent in January, following a fall of 0.1 per cent December last year.

“The economy picked up in January with strong growth in retail and wholesaling,” said Liz McKeown, director of economics statistics at the ONS.

“Construction also performed well with housebuilders having a good month, having been subdued for much of the last year.

“These were partially offset by falls in TV and film production, lawyers and the often-erratic pharmaceutical industry.

“Over the last three months as a whole, the economy contracted slightly.”

The ONS numbers showed GDP in January was 0.3 per cent lower than a year earlier and shrank by 0.1 per cent in the three months to January, both in line with economists' forecasts.

“While the last few years have been tough, today's numbers show we are making progress in growing the economy,” British Chancellor Jeremy Hunt said.

The services sector grew by 0.2 per cent in January and was the largest contributor to the rise in GDP, the ONS said, but in the three months to January showed no growth.

“The hope from here is that January’s slightly more promising GDP figure, largely driven by a strong performance in the services sector with upbeat retail sales volumes helping to offset the steep drop in December, will energise the economy and set it on the road to recovery, pushing any recession talk firmly into the rear-view mirror,” said Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners.

Increased confidence

Business groups largely welcomed the figures, even if they were quite a dim light at the end of a very long tunnel.

“We take some encouragement from this morning’s figures,” said Ben Jones, lead economist at the Confederation of British Industry.

“Not only do they increase our confidence that the economy will exit its mild recession in the first quarter, but growth was a little stronger than expected.

“Alongside the recent upturn in some business surveys, this adds to signs that the economy may be turning a corner.”

Construction performed well in January with housebuilders having a good month. Getty Images

While that corner may be being turned, economists warned it was happening very slowly.

“Any growth is likely to remain modest,” said Stuart Cole, chief macro economist at Equiti Capital.

“The overall burden of taxation is still set to rise this year while any boost the Bank of England may provide from cutting interest rates remains far from certain, given the strength still being seen in wages growth and a labour market that remains strong.”

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For some analysts, the weak growth figures are not making much of a difference to their interest rate forecasts.

“Today’s release may not move the dial much for the Bank of England,” said Ruth Gregory, deputy chief UK economist at Capital Economics.

“We think a rate cut this summer (perhaps in June) is still the most likely outcome.”