Next PM likely to inherit improved economic backdrop after UK growth revised up

The UK economy grew at a faster rate than previously thought in the first quarter of 2024, handing the next prime minister an improved economic backdrop.

Gross domestic product (GDP) rose by 0.7% in the first three months of 2024, revised upwards by the Office for National Statistics from a first estimate of 0.6%.

The first-quarter figures were lifted by growth in the services sector, up by 0.8%, as well as the production sector, which expanded by 0.6%, revised down from 0.8% growth in the first estimate. Other areas of the economy fared less well with bad weather hampering the construction sector, where output fell by 0.6%.

The data confirmed that the UK was the fastest-growing economy in the G7 during the first quarter after a short recession in 2023.

Real household disposable income – which calculates how much income a household is left with after tax adjusted for inflation – is estimated to have grown by 0.7% in the first quarter of this year, matching the growth in the final quarter of 2023, according to the ONS.

The strength of the economy has been a big issue in the UK general election campaign after voters suffered a squeeze on household incomes from higher inflation and increased mortgage rates over the past three years.

The prime minister, Rishi Sunak, has insisted that the UK economy has turned a corner but the latest encouraging data comes with less than a week before polling day.

The UK economy showed no growth in April 2024 with an increase in the services sector offset by falls in production and construction after heavy rain hampered building work and deterred shoppers from spending on the high street.

However, more recent figures show consumer confidence is returning – bolstered by falling inflation and stronger retail sales. UK inflation fell to 2% in May returning to the official target rate for the first time in nearly three years. Figures released last week showed retail sales bounced back with 2.9% growth in May after a weather-affected drop of 1.8% in April.

Economists said the improving economy is likely to benefit the incoming prime minister, with the Bank of England widely expected to cut interest rates later this year.

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“It now looks as though real household disposable income will grow by more than our forecast of 2.0% this year and we are expecting a solid 3.5% gain next year too,” said Paul Dales, the chief UK economist at the research company Capital Economics.

“This is certainly good news for whoever will be the prime minister this time next week, although it could also contribute to the Bank of England cutting interest rates a bit slower than otherwise.”

The Guardian