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%, although that was revised down from 0.8% in the initial 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 the second half of last year.
Real household disposable income – how much each home is left with after tax, adjusted for inflation – is estimated to have increased 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 general election campaign after voters suffered a squeeze from higher inflation and increased mortgage rates over the past three years.
Rishi Sunak has insisted that the UK economy has turned a corner but the latest encouraging data comes less than a week before polling day.
The Resolution Foundation thinktank said living standards – as measured by real household disposable income per head – were up by 2.4% as a result of pay rising faster than prices.
Despite the improvement as cost of living pressures have eased, living standards over the 2019-24 parliament as a whole fell by 0.6%, leaving the average person £120 a year worse off than they were at the time of the last election.
Adam Corlett, the thinktank’s principal economist, said it was only the third time since the first world war that living standards had been lower at the end of a parliament than at the start.
The UK economy showed no growth in April, 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% the previous month.
Economists said the improving economy was likely to benefit the incoming prime minister, with the Bank of England widely expected to cut interest rates later this year.
“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.”
Dales said the household savings ratio – the proportion of disposable income saved rather than spent – stood at 11.1% in the first quarter, its highest level since the second quarter of 2021.
Households tend to save more when they feel uncertain about the future, and the savings ratio rose during the cost of living crisis. Dales said that should the savings ratio come down from its “unusually high level” growth could be stronger than the 1% and 1.5% he was expecting for 2024 and 2025 respectively.
