Disposable income per head slumps despite economic growth
The Office for National Statistics left growth figures for the UK economy at 0.7 per cent in the first three months of the year unrevised on Monday.
Official data from the ONS showed quarter one’s growth was led by a 1.3 per cent increase in the production sector. Services and construction jumped 0.7 per cent and 0.3 per cent respectively.
The ONS said, despite headline figures remaining unchanged, the economy “still grew strongly” in February, as well as “growth coming in a little higher in March too”.
But the revised data follow April’s growth figures, which revealed the economy shrank beyond analysts’ expectations.
The ONS revealed a 0.3 per cent contraction in the UK economy in April. City analysts had expected GDP to contract 0.1 per cent, according to a Bloomberg poll.
The first three months of the year benefited from rising production ahead of Rachel Reeves’ tax rises in April and the threat of Donald Trump’s tariffs.
“There was broad based growth across services, while manufacturing had a strong quarter,” Liz McKeown, director of economic statistics at the ONS, said.
Reeves’ tax raid weighs on growth
But the bleak figures from April marked a blow to the Chancellor’s growth agenda, which she has banked much of her political reputation on.
Reeves has made delivering growth “further and faster” a central mission, with key reforms across planning and energy, as well as her upcoming financial services strategy, where she plans to outline how the sector can steer economic prosperity.
But economists have found the Chancellor’s own policies, namely her £20bn tax raid on employers in the Autumn Budget, helped burden firms with extra costs and squeeze profits.
Thomas Pugh, chief economist at RSM UK, said: “The big question now is whether the recent string of weak data in retail sales and employment is a one-off, due to the initial shock of tax increases and tariffs, or whether it’s the start of a new trend.”
Retail sales suffered their largest fall in 18 months after data showed a 2.7 per cent drop in May, economists had only expected a 0.5 per cent slump.
The Office for Budget Responsibility (OBR), the UK’s fiscal watchdog, expects the UK growth to be one per cent for the year.
The Bank of England brought its projection in line with the OBR, though interest-rate setters have described the spike in the first-quarter as “erratic” due to greater manufacturing output.
Little momentum in economy
Ruth Gregory, deputy chief UK economist, warned of the waning underlying momentum in the economy.
“GDP growth was unrevised at 0.7 per cent q/q in Q1, but we already know this strength has started to unwind. The underlying picture is still that there is very little momentum in the economy.”
Gregor said the news that the household saving rate fell from 12 per cent in the final quarter to 10.9 per cent in the first quarter “provides some encouraging signs that consumer spending growth will edge higher in the quarters ahead”.
“That said, these minor tweaks to the shape of growth don’t change the big picture,” she said.
Capital economics said the revised figures “do not change our view that the economy will grow by just one per cent this year”.
The World Bank said earlier this month that the global economy would suffer its worst fate since the financial crash in 2008, which is expected to trigger lower confidence at firms who are looking to export to new trading partners.
Interest rate cuts have also been eyed as a key source to spur growth, but rate-setters held at 4.25 per cent amid rising tensions between Israel and Iran risking a surge in energy prices.
A Treasury spokesperson said: “The UK saw the fastest economic growth in the G7 in the opening quarter of this year. Since July, real wages have grown more than they did in the entire decade after 2010 and living standards are up 1.2 per ccent —compared to the 0.4 per cent rise seen over the whole 2019–2024 parliament. This is beating OBR forecasts.”
“Through our plan for change we’ve boosted the national living and minimum wage, capped bus fares at £3, and extended free school meals to over half a million more children, delivering on our promise to put more money in people’s pockets.”