The UK economy grew by 0.3% in January, which is some seriously welcome news after months of downbeat forecasts – but why has this happened and what does that mean for you?
Here’s what you need to know.
Why did the economy grow?
First things first – Gross domestic product (GDP) is a key measure of all the activity of firms, governments and individuals a country produces.
On Friday, it was revealed that the UK’s GDP has slightly bounced back slightly after a noticeable dip in December, when it shrank by 0.5%.
So, what’s changed?
School attendance increased. This has a knock-on effect for freeing up parents to go to work rather than look after their children at home, following a period of unusually high absences just before Christmas.
The return of Premier League football after the World Cup also helped as it returned to a full schedule, and the private health providers saw an uptick in activity too.
Postal services seem to have partially recovered from the December strikes as well.
Still, as the director of economic statistics at the Office for National Statistics (ONS) Darren Morgan, said that the UK had only “partially bounced back”.
Is this a big deal?
Well, yes and no.
The Bank of England had forecast a shallow but long recession for the UK in 2023, and it definitely seemed like we were heading in that direction for a while.
A recession is defined as two quarters of negative growth. That works out to six months straight of economic decline.
So this news about 0.3% GDP growth means we may now be able to avoid a formal recession, as consumers have been unexpectedly resilient to the energy prices.
But, this bounce back was not a complete surprise, because of the sheer number of strikes which hit the UK in December and the winter flu, Covid and cases of Strep A which all swept across schools last term.
That means the economy has not completely outperformed expectations – and that we could still be going for a recession of sorts in the near future.
So, we’re not out of the woods?
Not really.
ONS figures show the economy still stagnated between November to January compared to the three months before, with a fall in overall output from manufacturing and construction industries.
As chancellor Jeremy Hunt explained: “In the face of severe global challenges, the UK economy has proved more resilient than many expected, but there is a long way to go.”
Deputy chief UK economist Ruth Gregory also told the BBC: “Looking beneath the surface the figures suggest the economy is on weaker ground than it appears.”
She said strike action in February (from teachers, nurses, ambulance workers and more) could also have a knock-on effect yet to be realised, as could the succession interest rate rises. Currently, they’re at 4%, the highest rate since 2008, pressuring mortgage holders.
Gregory said she therefore doubts “January’s strength will last and our hunch is that there will still be a recession”.
But, experts from the National Institute of Economic and Social Research believe the 0.3% GDP growth means we’ll suffer a shallow contraction at the very worst in the current quarter (January to March).
Energy bills are expected to rise again in April too, with inflation still at a 40-year-high and the ongoing cost of living crisis.
So what about your finances?
Higher GDP means people are working more, and getting slightly wealthier.
For a country to be doing well, the GDP has to gradually increase. It means there is more money being spent, which leads to more jobs, more tax for the government to spend, and better pay for the overall country.
But higher GDP doesn’t always translate into better outcomes for everyone.
There could still be inequality – so people at the top get richer, rather than everyone, and it could be skewed by growing population because that means more money is spent too.
Shrinking GDP does the opposite. Businesses decline and people loose their jobs.
The chancellor will also unveil the Spring Budget next week, which unpacks how the government plans to distribute its funds over the upcoming year based on how the UK is faring overall.
This latest news about the economy means the Budget will have a slightly more optimistic backdrop – but it has still come too late to affect the chancellor’s forecasts.