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UK economy's return to growth boosts Hunt's spring budget plans

LONDON, ENGLAND - NOVEMBER 17: Chancellor of the Exchequer Jeremy Hunt departs Downing Street to present the Autumn Statement to the House of Commons on November 17, 2022 in London, England. The Chancellor hopes his fiscal plans will restore market confidence in the UK's economic outlook, as well as head off a cost-of-living crisis. (Photo by Rob Pinney/Getty Images)
The UK economy's modest growth could give chancellor Jeremy Hunt more headroom ahead of next week's spring budget. Photo: Rob Pinney/Getty Images (Rob Pinney via Getty Images)

The UK economy rebounded to grow by 0.3% in January, according to official figures, potentially giving chancellor Jeremy Hunt more headroom ahead of next week's spring budget.

The Office for National Statistics (ONS) reported a recovery for output last month after the bigger than expected contraction of 0.5% witnessed in December, as activity recovered from crippling strikes that month.

The main contributing sectors were education (2.5%), as school attendance returned to November 2022 levels, and arts, entertainment and recreation.

However, the UK’s production sector shrank by 0.3% while construction output decreased by 1.7%. Gross domestic product (GDP) remained at 0% in the three months to January, the ONS said.

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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.

Read more: FCA tells UK banks to support homeowners struggling to pay mortgage

“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.”

The latest GDP figure could give chancellor Hunt a slight boost before next week’s budget announcement, when he will set out the government’s tax and spending policies.

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.’’

Despite the resilience of the UK economy in the face of a cost of living squeeze and widespread industrial unrest, analysts warn that the country is still "flirting" with a recession.

Read more: Chancellor could raise UK public sector pay amid £166bn spending headroom

Alice Haine, personal finance analyst at Bestinvest, said:  “The economy may have escaped a recession in 2022 — albeit by the skin of its teeth — but it’s too early to say whether the same will happen in 2023.

“The slight growth in January is certainly a better-than-expected start to the year, considering the multiple challenges hitting output from double-digit inflation and rapidly rising borrowing costs to falling real incomes and perpetual strike action."

Suren Thiru, economics director at ICAEW, said: “This modest rebound suggests that the economy is still on a downbeat path as eye-watering inflation bites into household incomes and curbs business activity.

“We’re likely to continue flirting with recession throughout much of 2023, as high inflation, tax rises and the lagged effect of rising interest rates shrinks consumer spending power, despite a boost from easing energy costs.

Watch: What is a recession and how do we spot one?

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