Britain’s economy grew 0.6% in the first three months of 2024, the sharpest increase since late 2022 and more than double the 0.2% forecast by most City economists, according to official data released today by the Office for National Statistics. The rebound erased talk of recession and pushed annual growth to 1.8%, the highest since the third quarter of 2022, when GDP had just begun to recover from the pandemic-era slump.

The Office for National Statistics confirmed the surge on Wednesday, attributing the gain to surging services output, a rebound in manufacturing, and a sharp drop in energy costs that reduced household bills. Economists who had warned of stagnation now concede the UK has outperformed Germany and France, both of which posted flat or negative growth in the same period. The International Monetary Fund had predicted the UK would suffer the deepest downturn among major economies this year because of spillovers from conflicts in the Middle East.

Chancellor Rachel Reeves, who took office in July 2024, seized on the figures to argue that the government’s industrial strategy and investment in green energy were yielding results. “This is not the time for complacency,” she said in a statement outside 11 Downing Street. “We’ve seen real progress, but global instability—especially in the Red Sea and Ukraine—still poses risks to supply chains and energy prices.”

Wage growth adjusted for inflation climbed to 2.3% year-on-year in March, the fastest rate since early 2022, easing pressure on households battered by two years of real-term income declines. Retail sales data for March also surprised analysts by rising 0.8%, the largest monthly increase in 11 months, as consumers returned to discretionary spending. The pound sterling strengthened 1.3% against the dollar on the news, touching its highest level since August 2023.

Not all sectors shared the optimism. The construction industry shrank for the third straight quarter, with output down 0.7%, as higher borrowing costs and labour shortages stalled major projects. Bank of England policymaker Swati Dhingra cautioned that while the data showed resilience, underlying weakness remained in productivity and business investment. “We cannot ignore the fact that UK productivity growth has flatlined since 2019,” she told a conference in Manchester on Tuesday. “That’s the real drag on long-term prosperity.”

The Bank of England is widely expected to hold interest rates at 5.25% at its next meeting on May 9, despite the stronger-than-expected growth. Governor Andrew Bailey has repeatedly stressed that inflation remains above target and that the Monetary Policy Committee will not rush to cut rates. Financial markets now price a 60% chance of a rate cut by November, down from 85% last month, as traders reassess the likelihood of persistent price pressures. Economists at the National Institute of Economic and Social Research warn that while the short-term outlook has improved, structural challenges—including an aging workforce and underinvestment in infrastructure—could erode gains within two years.

1. Rebound drivers — Services (+0.7%), manufacturing (+0.5%), and energy cost deflation (+12% year-on-year) fueled Q1 growth
2. Global headwinds — Red Sea shipping disruptions and Ukraine war still threaten supply chains and push food prices higher
3. Policy test — Reeves faces pressure to match growth with sustainable spending as public sector net debt remains above 98% of GDP

The IMF, which in January predicted UK growth of just 0.1% for 2024, has yet to revise its forecast following the release of the ONS data. A spokesperson said the fund was “closely monitoring” the situation but declined to comment on whether the UK’s performance would prompt an upward revision. Meanwhile, the European Central Bank cut interest rates by 0.25 percentage points today, citing easing inflation and weak growth across the eurozone. The contrast underscored the UK’s unexpected outperformance relative to its peers.