The UK economy grew by 0.3 per cent in January, rebounding from a drop in December, but fears about stagnation remain, economists said.
The latest data from the Office for National Statistics beat expectations of growth of 0.1 per cent and was an improvement on December’s 0.5 per cent fall.
Over the three months to January, GDP was flat, the ONS said.
ONS director of economic statistics Darren Morgan said: “The economy partially bounced back from the large fall seen in December. Across the last three months as a whole and, indeed over the last 12 months, the economy has, though, showed zero growth.
“The main drivers of January’s growth were the return of children to classrooms, following unusually high absences in the run-up to Christmas, the Premier League clubs returned to a full schedule after the end of the World Cup and private health providers also had a strong month. Postal services also partially recovered from the effects of December’s strikes.
“These were somewhat offset by a notable drop in construction with a slowdown in infrastructure projects and housebuilding having another poor month, partly due to heavy rainfall.”
Ahead of the Budget next Wednesday, Chancellor Jeremy Hunt is coming under pressure from some Conservative MPs to cut business and personal taxes in a bid to boost economic growth.
But Mr Hunt fears cutting taxes now could fuel inflation which was at 10.1 per cent in January. Prime Minister Rishi Sunak has made halving inflation this year one of his five priorities.
Responding to the latest GDP data, Mr Hunt said: “In the face of severe global challenges, the UK economy has proved more resilient than many expected, but there is a long way to go. Next week, I will set out the next stage of our plan to halve inflation, reduce debt and grow the economy – so we can improve living standards for everyone.’’
But Shadow Chancellor Rachel Reeves said: “Today’s results show our economy is still inching along this Tory path of managed decline. People will be asking themselves whether they feel better off under the Tories, and the answer will be no.”
The UK just avoided sliding into a recession – defined as two consecutive quarters of negative growth – at the end of last year. Although the economy shrank by 0.2 per cent in the third quarter from July to September it flatlined in the three months to December.
Earlier this year, the Bank of England softened its forecasts for this year saying that the expected recession would be shorter and shallower than previously feared with GDP falling 0.5 per cent.
The Office for Budget Responsibility is also expected to announce next week that the UK will have a shorter and shallower downturn than it was pencilling in last November.
Economists welcomed the better than expected GDP figures for January but said recession in 2023 was still on the cards.
Yael Selfin, chief economist at KPMG UK, said: “The marked fall in wholesale gas prices and easing of supply chain disruptions provided a welcome boost to economic prospects at the start of 2023.
“But this may not be sufficient to stave off a recession in the first half of this year, as consumer spending remains weak with households continuing to be squeezed by elevated prices and higher interest rates.”
Richard Carter, head of fixed interest research at Quilter Cheviot, added: “The UK may have avoided recession at the end of 2022 but the threat of one remains far from over, as evidenced by today’s GDP figures.”
Ruth Gregory, deputy chief UK economist at Capital Economics, said: “The 0.3 per cent rise in real GDP in January leaves the economy in better shape than we had expected just a few months ago. But looking beneath the surface, the figures suggest the economy is on weaker ground than it appears.”
Mr Hunt may have an extra £30bn at his disposal in next Wednesday’s Budget, in part down to higher than expected tax receipts in January.
But he is expected to focus any giveaways in his Budget on incentives to boost business investment and keeping the energy price cap at £2,500 a year for a typical household, rather than raising it to £3,000 in April.
But millions of families are still feeling the squeeze from high energy bills, soaring food prices and rising mortgage and rent payments.
In February, the Bank of England’s Monetary Policy Committee raised interest rates to 4 per cent, the highest level for 14 years. Analysts believe the rate will peak at 4.5 per cent in the summer.
Last week the Bank’s governor, Andrew Bailey, warned raising rates further may be “appropriate” to control inflation but cautioned against market expectations that interest rates would continue to rise.
