The economic bounce-back that many people won't be feeling

The Chancellor says economy 'returning to full health' as UK exits recession, but many people won't be feeling the change, ITV News Business Editor Joel Hills reports

It’s official. The UK has recovered from a recession that barely got going.

And we’ve emerged at very healthy pace.

The economy grew by 0.6% in the first three months of the 2024. Annualised, that’s growth of 2.5% a year - that used to be a steady run-rate but hasn’t been for a very long time.

This morning, the chancellor was understandably pleased. His reaction was also proportionate.

“Today’s growth figures are proof that the economy is returning to full heath for the first time since the pandemic,” Jeremy Hunt said.

That’s not gaslighting, whatever Labour might say. It’s fair comment.

There’s so much in the Office of National Statistics (ONS) data to be encouraged by.

Economic growth not only beat expectations, it was broad-based - the Services and Production sectors both expanded strongly. Consumer spending picked up, investment rose.

I rather liked the way the chief economist of the ONS, Grant Fitzner, put it on Friday morning: It feels in many ways like the economy is “normalising” after a series of shocks.

Pay is rising faster than prices again, businesses are feeling more upbeat about the future, the ratio of vacancies to job-seekers is back to pre-Covid levels, industrial action is less frequent and the Bank of England is talking about cutting interest rate cuts.

What happens next depends on what happens to inflation and interest rates, of course. And theirs is an argument that quarterly growth of 0.6% may persuade the Bank there’s no need to cut just yet. We’ll see.

“Rishi’s Recession,” as Labour called it, turned out to be tiny.

A peak to trough fall in GDP of 0.4% is so small that most economists wouldn’t consider it to be a recession.

During the first Covid lockdown, the UK economy contracted by 23%.

The downturn, such as it was, is over and the lost ground has already been recovered.

But here’s the rub: The UK economy is growing again but the population is growing more quickly.

Gross Domestic Product (GDP) per head (person) is a better measure of living standards and prosperity than GDP.

The amount our economy produces, divided by all the people in the country now stands at £8,281 per head.

That’s up slightly on the end of last year (£8,249) but 0.9% lower than in January 2023 when Prime Minister Rishi Sunak made his pledge “to grow the economy”.

And 1.2% lower before the pandemic.

This is a headache for the government, which is trying to persuade voters in an election year that the economy has “turned a corner”.

In one sense, and for the reasons set out above, that is true. But it’s also true that the lived experience of many people is they feel worse off.

“The wider backdrop is still worrying,” says James Smith at the Resolution Foundation, pointing out we have just exited the third recession in 16 years.

“Britain is falling into recession twice as frequently as it did in the second half of the 20th century and remains a stagnant. These all-too regular shocks and slumps in between are reducing living standards and straining there public finances.”

In the grand scheme of things, whether the UK economy contracted slightly at the end of 2023 or grow by 0.6% at the beginning of this year - while politically important - is economically almost irrelevant.

The fact that counts is growth in the UK has been weak for the last 15 years and living standards have barely improved as a result. Our economic ills pre-date Covid.

This is the problem we need our politicians to solve.

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