Economic growth even better than ‘gangbusters’ in ray of hope for Sunak

Prime Minister Rishi Sunak urged voters not to trust Labour with the economy just as it appeared to be recovering - Danny Lawson/PA

Britain’s economy expanded faster than first thought at the start of the year, new figures show, prompting Rishi Sunak to hail “the fastest growth in the G7”.

GDP rose by 0.7pc in the first quarter, according to the Office for National Statistics (ONS).

That was even stronger than the 0.6pc initially estimated, which was described at the time by Grant Fitzner, chief economist at the ONS, as “going gangbusters”.

Britain was already the fastest growing economy in the G7 before the revision but the new figures solidify that lead. The second-strongest economy in the group was Canada, which grew by 0.4pc.

Strong growth at the start of the year was a key motivator for Mr Sunak to call the snap election and he seized upon the upgrade as evidence of why people should vote Conservative.

The Prime Minister tweeted: “We’ve got a clear plan to deliver a more secure future for your family. Don’t surrender the economy to Labour.”

Rob Wood, at Pantheon Macroeconomics, said Britain “is on a robust recovery path”.

However, he warned it may be too late for the Prime Minister to benefit politically, given the intense pain of the cost of living crisis.

Mr Wood said: “It is great news that the economy grew strongly in the first quarter and it looks like it is going to grow strongly in the second quarter.

“But you are not going to get a feel-good factor from one quarter of growth after a long period of weakness.”

The upgrade was driven by a better than expected performance in the services sector, which makes up most of the economy. Scientific research and legal services both performed well.

Retail sales also rose strongly over the quarter, as strong wage growth and the Government’s cut to the headline rate of National Insurance Contributions (NICs) encouraged more spending.

Savings also rose, with families setting aside more than one tenth of their incomes, up from the usual pre-Covid rate of around 5pc.

Andrew Goodwin at Oxford Economics said this was “a reason to be optimistic” as it meant households could afford to keep spending throughout the year, boosting growth.

He said: “All you need going forward is to have a continuation of reasonably solid income growth and consumers being slightly less cautious, and you get much more bang for your buck in terms of consumer spending growth.”

GDP per head, which can be used as a measure of living standards, rose by 0.5pc in the first quarter after almost two years without growth.

However, not every part of the economy is performing well. Output from the manufacturing sector was worse than expected, growing by 1.1pc rather than the 1.4pc initially estimated. Construction shrank by 0.6pc.

Retail sales were also weak in April, the first month of the second quarter, because of wet weather. The latest junior doctors’ strike threatens to dent healthcare output. Both factors suggest growth will be slower in the second quarter.

While Britain was the fastest-growing economy at the start of the year, the economy has further to go to catch up with most of the G7 in terms of growth since the pandemic.

Britain’s economy is just 1.8pc bigger than it was in the final months of 2019. By contrast the US has boomed over the same period, growing by 8.6pc.

Only Germany’s recovery has been weaker than Britain’s, expanding by just 0.3pc over the same period.