UK Economy Shows Signs of Recovery as Growth Reaches Turning Point

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The UK economy appears to have turned a corner, showing signs of recovery and gaining momentum, as highlighted by two influential surveys revealing a “turning point” in growth.

Research conducted by BDO, a consultancy firm, indicates that output surged to its highest level since May 2022 last month, accompanied by a decline in inflation to its lowest level in over three years.

The BDO Output Index rose to 102.39 in March, surpassing the 100-point threshold that delineates growth from contraction. This uptick was propelled by increased activity in both the services and manufacturing sectors.

Kaley Crossthwaite, a partner at BDO, remarked, “Output reaching its highest point in nearly two years illustrates the UK’s robustness in the face of global economic adversities and is a significant stride towards economic stability and growth.”

These findings align with other surveys indicating expectations for impending interest rate cuts and a moderation in price growth, which buoyed output last month. Purchasing managers’ indices for the services, manufacturing, and construction sectors all registered above the 50-point mark indicative of growth, marking the first simultaneous growth signal since June 2022.

Following a contraction in GDP of 0.1 per cent and 0.3 per cent in the third and fourth quarters of last year, respectively, the UK economy grappled with recession. However, the International Monetary Fund forecasts a 0.6 per cent expansion for the UK economy this year.

A slowdown in the growth of food, alcohol, and restaurant prices contributed to BDO’s inflation index declining to 96.81, its weakest reading since February 2021 amidst Covid-19 lockdowns.

These data hint that the Office for National Statistics’ official inflation estimate for March, slated for publication on April 17, may decrease from 3.4 per cent. Additionally, they bolster expectations for forthcoming interest rate cuts by the Bank of England from a 16-year high of 5.25 per cent.

According to financial markets, the monetary policy committee is anticipated to reduce the UK base rate three or four times this year, commencing either at the June or August meetings, potentially invigorating UK economic growth that has languished over the past 18 months.

However, BDO notes that employment has sustained its downward trend for the ninth consecutive month, dropping to its lowest level in over a decade. The monetary policy committee has expressed intent to lower rates only once the labour market has cooled sufficiently.

Meanwhile, Deloitte’s survey of 64 chief financial officers from leading UK-listed companies, including eight FTSE 100 and 23 FTSE 250 firms, with a combined market value of £201 billion, indicates growing confidence in trading prospects.

Ian Stewart, chief economist at Deloitte, observed, “Optimism among the UK’s largest businesses is running at well above average levels, suggesting that the worst of the economic downturn is behind us, with current sentiment at levels that preceded periods of good growth in 2010, 2014, and 2021.”

Chief financial officers anticipate interest rate cuts of a full percentage point over the next 12 months, alongside expectations for inflation to decline to 2.9 per cent in a year’s time, still above the Bank of England’s 2 per cent target. Over a two-year horizon, they envisage inflation dropping to 2.3 per cent, down from 2.9 per cent in the preceding survey.