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The UK economy returned to growth in January, and has exceeded market expectations, data from the Office of National Statistics showed Friday.
Gross domestic product expanded 0.8% from the previous month in January, rebounding from December's 0.2% drop, and was ahead of market consensus - provided by FXStreet - of 0.2% growth.
‘All sectors contributed positively to GDP growth in January 2022. Services were the main driver contributing 0.6 percentage points, with production and construction both contributing 0.1 percentage points,’ the ONS said.
The ONS data showed industrial production growth was 0.7% in January versus the previous month, primarily driven by 0.8% growth in manufacturing. This follows industrial production growth of 0.3% in December 2021.
The market had predicted a measly 0.1% rise in industrial production, while manufacturing was guided to rise by 0.2%.
Services output grew by 0.8% in January and is 1.3% above its pre-coronavirus pandemic level, the ONS noted. This followed a 0.5% fall in December 2021.
Susannah Streeter, senior investment at Hargreaves Lansdown, said: ‘Bars, pubs and restaurants benefited from a spurt of pent up demand as, after the mass cancelling of events before Christmas, there was a surge of business in what's usually the quietest month of the year. Output for food and beverage activities jumped 6.8%, with revellers shrugging off the shock of Omicron and celebrating once more.
‘That helped the overall consumer-facing services sector grow 1.7%. Building sites also whirred busily in January with construction rising by 1.1% while the wholesale and retail trade lifted 2.5% and was the main contributor to January's growth in services.’
The ONS noted the UK economy is now 0.8% above its pre-coronavirus level in February 2020.
The stats body added: ‘The main contributors to monthly GDP growth between February 2020 and January 2022 were human health & social work activities, information & communication and professional, scientific & technical activities. The largest drivers of negative growth from monthly GDP between February 2020 and January 2022 were other service activities and real estate activities.’
Streeter noted the high demand for extra healthcare services through the pandemic has driven economy above its pre-crisis level.
‘Consumer facing services are still 6.8% below pre-crisis levels and output from the production sector is 2% below,’ she continued. ‘This snapshot has set the scene for a resilient February, with the bounce back from Omicron expected to continue, but the euphoria of the rebound is likely to be short lived. The conflict in Ukraine has caused already hot commodity prices to heat up again, with households and businesses already feeling the temperature. As lockdown savings dwindle, and higher tax and energy bills are set to land, it's set to put downward pressure on growth in the months to come.’
In the three months to January 2022, GDP was up 1.1% compared to the previous three months.
‘Services was the main contributor in the three months to January with a 0.8 percentage point contribution, while production and construction both also contributed positively, by 0.1 and 0.2 percentage points respectively,’ the ONS said.
Pantheon Macroeconomics said the ‘modest’ hit from Omicron ‘waned quickly’ in January, but it believes GDP growth is set to slow as real disposable income drops. Pantheon is predicting the UK economy to grow by about 0.9% quarter-on-quarter in the first quarter.
‘As a result, it is a safe bet to assume that the [Bank of England's] Monetary Policy Committee will raise bank rate by 25bp, to 0.75%, next week. Nonetheless, the recovery likely will stall in Q2,’ it added.
Pantheon pointed to the impending 54% rise in Ofgem's energy price cap, higher fuel prices and an increase in employees' national insurance contributions leading to a ‘sharp’ quarter-on-quarter reduction in households' real disposable income of nearly 2%.
It continued: ‘This surely will arrest the recovery in spending on discretionary goods and services, despite the large stock of savings held by households in aggregate. Accordingly, we think that the economy's sluggishness in Q2 and future quarters will persuade the MPC to refrain from raising bank rate further in the second half of this year, after increasing it to 1.00% in May.’
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