The UK economy has emerged from recession after official figures revealed growth in the first three months of 2024.
The Office for National Statistics (ONS) estimated that gross domestic product (GDP) grew by 0.6% between January and March.
It meant the economy recovered from a technical recession recorded in the final half of 2023.
Here we look at what the return to economic growth means:
What is a recession?
A recession is defined by two or more quarters in a row of falling gross domestic product (GDP).
The UK was therefore in a technical recession after the ONS reported declines of 0.1% in the third quarter of 2023, and 0.3% in the fourth quarter.
Why did the UK enter recession?
The recession came after households and businesses were battered by ongoing cost pressures and a lengthy run of interest rates that took Bank rate to 5.25% – the highest level since 2008.
This heaped further cost pain on millions of mortgage borrowers, with all but the most in need seeing no energy bill or cost of living support this winter from the Government.
It led to many restricting their spending habits, which hit the housing market and consumer-facing sectors hard.
Construction firms, retailers and hospitality companies were among those to face particular pressure.
What has changed?
The short-lived trend of quarterly economic decline came to an end in the first quarter of 2024, after the ONS reported faster-than-expected growth of 0.6%.
It came after rises in GDP for each of the first three months, with a 0.4% improvement in March, the latest month reported.
Economists said that GDP grew for the quarter largely due to the services and production industries – which saw rises of 0.7% and 0.8% respectively.
This has come amid an improvement in consumer spending, with resilience across retail stores, pubs and restaurants.
Nevertheless, the construction sector remained in decline.
Has the economy turned a corner?
Shortly after the latest data, Prime Minister Rishi Sunak declared that it proved “the economy has turned a corner”.
Earlier this week, Bank of England governor Andrew Bailey said he was “optimistic that things are moving in the right direction”, with inflation expected to drop to the 2% target rate in the coming months.
The economic trend has been largely positive, particularly for inflation, which has come down from a peak of 11.1% in 2022.
The economy has turned a corner. Today's news proves that.
We know things are still tough for many people, but the plan is working, and we must stick to it.
— Rishi Sunak (@RishiSunak) May 10, 2024
However, in recent weeks the NIESR think tank said the UK economy is still set for “anaemic” growth while the OECD (Organisation for Economic Co-operation and Development) downgraded its 2024 and 2025 growth forecasts, with the country expected to see the weakest growth across the G7 next year.
IPPR economist George Dibb stressed it is “too early to say that the British economy has turned a corner” despite the GDP increase, with many Britons still set for mortgage and rent increases.
What does it mean for Government?
Chancellor Jeremy Hunt claimed “the economy is returning to full health” as he cheered the news.
Meanwhile, Labour shadow chancellor Rachel Reeves said “this is no time for Conservative ministers to be doing a victory lap”.
It is nonetheless welcome news for the Government during an election year, particularly given a pledge made last year to grow the economy.
But it follows a recession which put firm pressure on the Government for its handling of the economy, with Labour stressing that they plan to fight the election on the economy as a main topic.
The Government will keen for sustainable GDP growth, inflation near to the target rate and a first reduction in interest rates when an election is announced.
What is the outlook for the economy in 2024?
The Bank of England said on Thursday that it expects the economy to grow by 0.5% this year and 1% next year.
It represents an improvement on the 0.1% rise seen in 2023, but it is weaker than previously projected by bodies such as the OECD.
The Bank also said CPI inflation is expected to fall to a lower level than prior predictions, dropping below-target to 1.5% across 2026.
In the shorter-term, CPI is set to hit the 2% target between April and June, before rising to 2.6% by the end of the year.
It indicates that the economic volatility seen after the pandemic and Russian invasion of Ukraine has largely faded, but that growth remains constrained in the face of high interest rates.