UK ‘bottom of G7 growth league table’ despite avoiding winter recession – business live

Newsflash: Royal Mail boss Simon Thompson is to step down, ending a turbulent two-year stint at the helm of the postal operator.

International Distributions Services, Royal Mail’s parent company, has just told the City that Thompson believes it is “the right time for the company to move forward under new leadership”, following the recent negotiators’ agreement between Royal Mail and the CWU union.

Thompson had been expected to step down this week, having been accused by unions of inflaming the bitter industrial dispute.

IDS says it is in “advanced stages of appointing a new CEO”; Thompson has agreed to remain with the business until 31 October 2023 as part of the transition.

Thompson’s credibility was put in question after a recent Commons select committee appearance, as my colleague Gwyn Topham explained on Monday:

A potential end to the long industrial dispute was reached last month in a provisional agreement with the Communication Workers Union, which has called strikes on 18 days in the past year. Members are voting on a three-year pay deal worth 10% that would also bring in Sunday working, but which the CWU said had headed off the “Uberisation” of Royal Mail jobs.

The union had accused the company’s management of “a complete lack of integrity” after changes to work practices that had not been agreed were imposed at offices across the country.

Thompson was accused of “incompetence or cluelessness” by MPs on the business committee after appearing before them in January and being recalled over questions about his evidence. They called on the regulator, Ofcom, to investigate whether the company had broken legal service requirements.

Sir Keir Starmer has said the latest economic growth figures were “nothing to celebrate” after UK gross domestic product (GDP) increased by 0.1% in the first quarter of this year.

Speaking to broadcasters during a visit to the Crick Institute in central London, the Labour leader said:

“This is nothing to celebrate and is yet more low growth on the back of 13 years of low growth.

“I think the essential question many people today will be asking themselves is, ‘Do I feel any better off now than I did 13 years ago when this Government started?’

“I think the resounding answer to that around the country will be, ‘No, I don’t’.”

Mark Sweney

As well as today’s UK GDP report, the other big news of the morning is that Mike Lynch, the billionaire founder of UK software group Autonomy, has been extradited to the US after losing his appeal in the High Court last month.

My colleague Mark Sweney reports:

Lynch is facing allegations that he duped the US firm Hewlett-Packard into overpaying when it struck an $11bn deal (£8.2bn) for his software firm Autonomy in 2011. He denies any wrongdoing.

Lynch, the founding investor of the British cybersecurity firm Darktrace, had said he was considering a last-ditch appeal to the European court of human rights after the high court ruling in London last month.

“On 21 April, the high court refused Dr Lynch’s permission to appeal his extradition,” a spokesperson for the Home Office said.

“As a result, the normal 28-day statutory deadline for surrender to the US applies. Dr Lynch was extradited to the US on 11 May.”

High inflation, and falling real wages, means that the current period of very weak economic growth will feel like a recession for many people.

James Smith of Resolution Foundation explains why, in this Twitter thread:

Our economics editor, Larry Elliott, says it is still too soon to sound the all clear, let alone hang out the bunting, for the UK economy.

He points out that the economy is still 0.5% smaller than it was in late 2019, the date of the last general election and the period immediately before the start of the Covid-19 pandemic.

Larry explains:

The UK economy has been going nowhere for the past year. After rebounding most of the way out of its pandemic trough by early last year, there has been virtually no movement. In three of the last four quarters – including the first three months of 2023 – there was growth of 0.1%, and in the other the economy contracted by 0.1%.

This is unusual. Periods when the economy moves sideways are rare, especially ones that go for as long as a year. They tend to be followed either by recession or recovery, and while the signs are that it will be the latter, it is too soon to say for sure.

On the upside, the economy continued to expand through what was always going to be a tough winter. A combination of double-digit inflation and widespread strikes represented two serious headwinds to activity, and even 0.1% growth is better than most forecasters were expecting.

Here’s Larry’s full analysis:

Despite expanding slightly over the last two quarters, avoiding a winter recession, the UK is still “bottom of the G7 league table” for growth since the Covid-19 pandemic, economists say.

Today’s GDP report shows that the UK economy was still 0.5% smaller in the first quarter of this year than in the last quarter of 2019 – just before Covid-19 hit the global economy.

In contrast, France’s economy is 1.3% larger, and Germany is just 0.1% smaller than in Q1 2019.

The US economy has raced ahead, and is 5.3% bigger than its pre-Covid size. The US economy benefited from several large stimulus packages, and also didn’t suffer as much of a jump in energy prices as Europe.

This table, from this morning’s UK GDP report, shows the details:

As we covered earlier, the 0.1% growth in the UK in January-March beats Germany (no growth), but lags France, Italy and the US.

Samuel Tombs, economist at Pantheon Macroeconomics, says the UK is “still at the bottom of the G7 league table” since the pandemic.

Tombs told clients this morning:

The U.K. remains the only G7 country in which the main quarterly measure of GDP has not recovered to its pre-Covid peak yet; it still was 0.5% below its Q4 2019 level in Q1.

This chiefly reflects weakness in households’ real spending, which was 2.3% below its Q4 2019 level. But at least the magnitude of the underperformance is not increasing relative to other countries in Europe, which have faced a similarly enormous energy price shock.

Indeed, the U.K.’s quarter-on-quarter growth rate in Q1 matches the Eurozone’s 0.1% increase.

The TUC is concerned that the UK has been “flatlining” for more than a year.

TUC General Secretary Paul Nowak said:

Rishi Sunak still doesn’t have a plan to stimulate growth and get us out of this rut. And his ministers are making things worse by holding down pay while inflation is over 10%.

“Without pay growth, families are forced to cut back their spending, and business lose customers. That’s why a competent government would put pay growth at the heart of the UK’s economic plan.”

The UK economy has also suffered from weak business investment. It rose in the last quarter, but remains 1.4% below its pre-Covid levels.

Despite growing slightly in January-March, Britain’s economy remained 0.5% smaller than in the fourth quarter of 2019, shortly before the coronavirus pandemic.

That’s a weaker rebound than any other major advanced economy, Reuters points out.

Full story: UK economy shrank unexpectedly by 0.3% in March

Phillip Inman

The UK economy shrank unexpectedly in March, by 0.3%, as the cost of living crisis and industrial action took a toll, my colleague Phillip Inman writes.

However, the economy grew by 0.1% over the first quarter as a whole, mainly because of a strong January, while growth flatlined in February, according to the Office for National Statistics. It followed 0.1% growth in the final quarter of 2022.

Darren Morgan, an ONS director of economic statistics, said:

“Despite the UK economy contracting in March, GDP grew a little over the first quarter as a whole.
“The fall in March was driven by widespread decreases across the services sector. Despite the launch of new number plates, cars sales were low by historic standards – continuing the trend seen since the start of the pandemic – with warehousing, distribution and retail also having a poor month.
“These falls were partially offset by a strong month for manufacturing as well as growth in gas production and distribution and also in construction.”

The Bank of England, which increased interest rates to 4.5% on Thursday, has forecast that the UK economy will stagnate this year – expecting growth of 0.25% – after tearing up a forecast last year that Britain was on course to suffer one of the longest recessions on record, stretching into 2024.

More here:

The UK economy lagged behind some major international rivals in the first quarter of this year, but did outperform Germany.

The 0.1% rise in UK GDP in January-March, reported this morning, matches the eurozone average of 0.1% in Q1 2023, but weaker than the European Union average of 0.3% growth.

France, though, grew by 0.2% in January-March, while Italy and Spain both expanded by 0.5%, and Portugal’s growth accelerated to 1.6%.

Germany’s economy stagnated in Q1 2023, though.

Further afield, the US economy grew at an ‘annualised rate’ of 1.1% in Q1, which is the equivalent of almost 0.3% quarterly growth.

Japan is forecast to have grown by an annualised 0.7% – or almost 0.2% during the quarter – in the first three months of 2023.

Canada is forecast to have grown by 2.5% on an annualized basis – or around 0.6% in the quarter.

The 0.3% contraction in the UK economy in March is a surprise, says James Smith, ING’s developed markets economist.

Smith warns that the economic data is “hard to read right now”, a problem that will be compounded by the extra Bank Holiday in May for the coronation.

But in general, falling gas prices and a resilient jobs market suggests the near-term recession risk has eased, Smith says. And it you strip out all the volatility, the economy “seems to be reasonably stagnant”.

Smith explains:

Monthly GDP shows an unexpected 0.3% fall in activity during March, owing to weakness across a range of sectors. March was memorably wet, so some of this underperformance can be attributed to bad weather, and to some extent also strike action. But that doesn’t seem to explain all of the disappointment, with a 0.8% fall in consumer-facing services, and casts doubt over the Bank of England’s tentative finding in yesterday’s Monetary Policy Report that private sector activity had staged a modest recovery throughout the first quarter.

Ultimately, the recent figures have been thrown around by several one-off factors, ranging from the Queen’s funeral last year, to strikes and even some knock-on effect from the World Cup at the end of last year.

That volatility will continue, given that the extra Bank Holiday this month for the Coronation will likely temporarily shave 0.5% off monthly GDP, only to be regained in June. While the impact of these additional holidays appears to have lessened compared to past decades, it’s probably enough to produce a 0.2% decline in overall second-quarter GDP.

Chancellor Jeremy Hunt has responded to today’s GDP report, saying:

“It’s good news that the economy is growing but to reach the government’s growth priority we need to stay focused on competitive taxes, labour supply and productivity.
“The Bank of England Governor confirmed yesterday that the Budget has made an important start but we will keep going until the job is done and we have the high wage, high growth economy we need.”

Yesterday, the BoE said that the fiscal support in Hunt’s Spring Budget had helped to strengthen the economic outlook.

Hunt doesn’t mention, though, that the economy stalled in February, and contracted unexpectedly in March after a strong January.

It’s also not immediately clear how a ‘high wage, high growth’ economy will be achieved while the government is refusing to accept public sector pay demands, leading to strikes which are hitting growth.