Cost of living and strikes stunt UK economic growth in opening months of 2023

May 15, 2023

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The UK grew only weakly in the first three months of the year with the economy hit by strikes, cost of living pressures and impacts of wet weather.

The economy grew by just 0.1% between January and March, figures showed, and it remains smaller than levels seen before the Covid pandemic.

The UK is also lagging behind growth seen in other major economies. On Thursday, the Bank of England said it was more optimistic about prospects, and the UK would avoid a recession.

Its comments came after the Bank increased interest rates to 4.5% from 4.25% as part of its continued attempt to slow soaring prices.

The ONS figures showed that while the economy grew slightly over the first three months of 2023, in March it contracted by 0.3%, with car sales and the retail sector having a bad month.

The economy is still 0.5% smaller than pre-pandemic levels, the ONS said. While the UK outperformed Germany in the first three months of the year, many other major economies grew faster in the same period, further reinforcing the poor economic output encountered across the UK.

The economy just about grew in the first quarter of this year, but at 0.1% that was by the smallest possible margin. The fall in March, the latest month, is of some concern with the service sector going into a decline, and car sales continuing to disappoint.

While the engine of growth in the economy is on, the UK is going to have to wait a little longer for the impacts of this to be felt.

G7 finance ministers warn of ‘uncertainty’ on global economic outlook

G7 finance ministers have warned of “heightened uncertainty” surrounding the global economy and the need to address regulatory gaps in the banking system in the wake of the most recent financial sector disruption.

The global economy has shown resilience against multiple shocks, was the statement multiple finance ministers of the world’s most advanced economies said in their final communique after a three-day ministerial meeting in Japan on Saturday. 

However, many voiced their opinions regarding a need to remain vigilant and stay agile and flexible in enforcement of economic policies in the wake of recent economic predictions.

The finance ministers also noted the need to fill data, supervisory and regulatory gaps in the banking system that have emerged following the March collapses of Silicon Valley Bank and Signature Bank and the failure of First Republic in recent weeks. 

The US and its G7 partners have made removing sanctions loopholes and combating evasion their key priority in recent months as, more than a year after Russia’s full-scale invasion of Ukraine, the appetite for imposing restrictions on various parts of Russia’s economy wanes.

Against that backdrop, the finance ministers also agreed to strengthen sharing of intelligence on possible sanctions dodging, and monitor the effectiveness of the price caps on Russian crude oil and petroleum products. 

The G7 nations have also committed to providing economic support of $44bn to Ukraine, enabling the IMF’s approval of a four-year lending programme worth $15.6bn as a result.

According to people briefed on the ongoing discussions, Brussels is also discussing restrictions on certain EU exports to countries that it suspects are re-exporting various sanctioned products to Russia to prevent critical components from ending up in the midst of the ongoing conflict.

US inflation below 5% for first time in two years

Prices for various products such as milk, airline tickets and new cars fell across the US last month, helping to drive inflation down to its lowest rate in two years.

Inflation was 4.9% in the 12 months to April, the latest official figures show. This value was down from 5% in March, and marks the tenth month in a row that price rises have slowed across the country.

The fall comes after the US central bank has sharply raised interest rates to try to control inflation. And this unfolded as Inflation in the US peaked last June at 9.1% - the highest it has been since 1981.

But officials have hesitated to declare further success, as a problem that once seemed contained to particular sectors - such as energy and manufactured goods - has spread rapidly throughout the economy.

Housing, petrol and used car prices all jumped from March to April. The cost of haircuts, veterinary visits and gardening services has also climbed.

And though no longer rising uncontrollably, overall prices continue to rise far more quickly than the 2% rate the Federal Reserve considers sustainable.

Core inflation - which does not include food and energy prices, which change frequently - rose by 5.5% in the 12 months to April.

The Federal Reserve has raised interest rates 10 times since last March, bringing them to the highest levels since 2007 as multiple attempts to contain the rising rates have not been successful.

The latest moves are intended to discourage people from borrowing, leading economic activity to slow and easing the pressures that are continuing to push up prices.

Economists have also stated the latest figures could help convince policymakers to pause, but they warned that progress remains tentative rather than the desired rapid response.

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