Volkswacht Bodensee - UK economy exits recession in pre-vote boost for PM Sunak

Gross domestic product expanded 0.6 percent in the first three months of this year, the Office for National Statistics (ONS) said, with strong growth in services and car manufacturing.

That beat market expectations of 0.4-percent growth and sent London's stock market to a fresh record peak, with sentiment buoyed also by the Bank of England (BoE) on Thursday signalling an interest-rate cut in the summer.

Sunak -- whose governing Conservatives are trailing the main opposition Labour Party in polls before a general election -- has made growth one of his top priorities.

The economy contracted slightly for two quarters in a row in the second half of 2023, meeting the technical definition of a recession that was caused by elevated inflation that has prolonged a cost-of-living crisis.

- 'Return to health' -

"There is no doubt it has been a difficult few years, but today's growth figures are proof that the economy is returning to full health for the first time since the pandemic," said finance minister Jeremy Hunt.

Labour finance spokesperson Rachel Reeves slammed the government's stewardship of the economy.

"From no growth to low growth -- is that really the scale of the Conservatives' ambitions? Food prices are still high, families are paying more on their monthly mortgage bills and working people are worse off," she said.

Richard Carter, head of fixed interest research at wealth manager Quilter Cheviot, said the UK was "clearly entering a more optimistic period".

"The government will be hoping to take advantage of this in the lead up to the general election," he added.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said that the UK economy "has jogged out of recession" after output shrank 0.3 percent in the final quarter of last year and by 0.1 percent in the prior three months.

She added: "It's clear a corner has been turned, as intense cost-of-living pressures subside, and consumers and companies eye lower borrowing costs on the horizon."

The Bank of England on Thursday left borrowing costs at 5.25 percent, the highest level since the 2008 global financial crisis, hurting borrowers but boosting savers.

- 'Don't cut too soon' -

The BoE maintained its main interest rate for a sixth meeting in a row, mirroring a wait-and-see approach by the US Federal Reserve and European Central Bank.

Signalling that a rate cut was on the horizon, two members of the bank's nine-strong Monetary Policy Committee voted for rates to be cut by 0.25 percentage points.

Cautioning over the timing of a cut, Hunt on Thursday said the BoE should not "rush into a decision that they had to reverse at a later stage".

Latest data showed UK annual inflation fell less than expected in March to 3.2 percent, keeping it well above the BoE's two-percent target.

The rate, however, has come down sharply from a four-decade high above 11 percent in late 2022, when energy and food prices soared following Russia's invasion of Ukraine.

H.Kuenzler--VB