The UK's monthly GDP numbers have been on a wild ride over the past few months. Still, fresh data shows that the economy grew by 0.1% in February as widely expected. This followed a decent rebound in activity in January after December was dragged down by a strangely weak Christmas trading period for retailers.
It is expected the UK economy will grow by 0.3% for the first quarter as a whole. That would mark the end of a very modest technical recession, albeit one where the aggregate figures masked steeper falls in per capita output.
One shouldn't read too much into any given month's worth of data and it's worth noting that the fourth quarter decline in overall GDP was partly down to volatility in this data. October's manufacturing data, for example, was unusually weak and weighed on overall quarterly activity, but has since been followed by a strong bounce back which includes a 1.2% increase in February alone.
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Outlook for the UK economy is undoubtedly improving
Nevertheless, the data indicates that the outlook for the UK economy is undoubtedly improving. For one thing, the service sector PMIs, which represent the lion's share of UK activity, have been above the breakeven 50 level for five months now. Real wage growth is also consistently positive, with headline inflation set to dip below 2% in the second quarter at a time when nominal wage growth will likely stay well north of 4%. That positive real wage growth is set to persist through the remainder of this year.
Admittedly, the impact of past rate hikes is still feeding through to the economy, though it is estimated the majority of the mortgage squeeze is now behind us. By the summer, it is estimated that 80% of the passthrough of higher Bank Rate to mortgage holders will have happened, based on current forecasts for the average interest rates being paid by UK households.
The bottom line is that UK residents are likely to see growth rates remain positive throughout 2024 and potentially gain momentum into the second half of this year. One shouldn't expect fireworks though, as the estimated growth outlook is unlikely to have much bearing on the timing of the first Bank of England rate cut. That'll be determined primarily by services inflation and wage growth, and with the potential for a bit of stickiness in the former in the near term, we're still narrowly favouring an August rate cut over June.
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