Growth Ahead of General Election

Main points

• Monthly GDP flatlined in April, following a 0.4 per cent growth in March. This monthly figure was supported by growth in Services which was offset by falls in both production and construction. GDP grew by 0.7 per cent in the three months to April, driven mainly by Services and Production, in line with our forecast published last month.
• These GDP figures provide some respite and set the stage ahead of the general election. However, the elephant in the room remains – poor productivity growth, falling living standards, elevated economic inactivity and low investment are all holding back economic growth. As shown in figure 1 below, the economy flatlined following the initial stages of the post-pandemic recovery. Fostering robust and sustained economic growth should remain a top priority for whichever party forms the next government.
• In line with the uptick observed in the PMIs across all sectors, we forecast that GDP will continue its momentum, growing by 0.1 per cent in May relative to April. This is driven by growth mainly in Services, particularly Distributions, Hotels and Restaurants. Indeed, the S&P Global/CIPS UK Composite PMI reported an optimistic balance of 53.0 in May while business confidence increased on the back of improving economic prospects. In line with this positive sentiment, we now forecast GDP to grow by 0.5 per cent in the second quarter of 2024, driven mainly by the growth in Service.

“Today’s subdued GDP figures signal that the UK remains fragile on its route to a sustained economic recovery. However, the broader perspective remains an economy grappling with stagnation as low productivity and high economic inactivity curtail growth potential. Structural reforms and policies to boost public and private investment should be the focus for the next government, to enter a new era of higher economic growth.”

Hailey Low, Associate Economist