UK economy exits recession as GDP rises 0.4% in March – what it means for your money
THE UK economy grew again in March, official figures show.
Gross Domestic Product (GDP) grew by 0.4% in March, the Office for National Statistics (ONS) said.
The latest figures also help set a final benchmark for proving that the economy grew in the first quarter of this year.
These show that GDP grew by 0.6% between January and March.
Rishi Sunak said: “The economy has turned a corner. Today’s news proves that.
“We know things are still tough for many people, but the plan is working, and we must stick to it.”
It follows two-quarters of GDP contracting between July and December last year.
The UK economy shrank by 0.3% in the last three months of 2023 meaning the UK tipped into a technical recession, defined as two or more quarters in a row of falling Gross Domestic Product (GDP).
However, experts said the recession was considered “mild” compared to others in recent history.
Commenting on the latest GDP figures, Chancellor Jeremy Hunt said: “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.”
A healthy economy is one where GDP is growing but if it stalls or is falling, it’s bad news for businesses and consumers.
The news comes just a day after the Bank of England left interest rates unchanged for the sixth consecutive time.
Decision-makers on the Bank’s Monetary Policy Committee (MPC) have left the base rate at a 16-year high of 5.25% yesterday.
High street banks and lenders use the Bank of England (BoE) base rate to set the interest rates it offers customers on mortgages, loans and savings.
The CPI measure of inflation fell to 3.2% in March – down from 3.4% in February and the lowest since September 2021.
However, the BoE now expects inflation to fall below its 2% target by June and could eventually drop to 1.5% in 2026.
It means that analysts and investors now believe that interest rates have the potential to fall as early as June.
What it means for your money
GDP is a measure of the economic output of companies, individuals and governments.
It’s also a measure of how healthy and prosperous an economy is.
If GDP is going up, it generally means people pay more in tax because they’re earning and spending more.
This means more money for the government who can spend the extra cash on public services such as schools and hospitals.
When the economy shrinks, this can go in reverse, meaning households can see their standard of living drop.
If GDP falls, it means businesses struggle and may lay off staff from work as well.
What is the base rate and how does it affect the economy?
NINE members of the Bank of England's Monetary Policy Committee meet eight times each year to set the base rate.
Any change to the Bank’s rate can have wide-reaching consequences as it directly influences both:
- The cost that lenders charge people to borrow money
- The amount of savings interest banks pay out to customers.
When the Bank of England lowers interest rates, consumers tend to increase spending.
This can directly affect the country’s GDP and help steer the economy into growth and out of a recession.
In this scenario, the cost of borrowing is usually cheap, and the biggest winners here are first-time buyers and homeowners with mortgages.
But those with savings tend to lose out.
However, when more credit is available to consumers, demand can increase, and prices tend to rise.
And if the inflation rate rises substantially – the Bank of England might increase interest rates to bring prices back down.
When the cost of borrowing rises – consumers and businesses have less money to spend, and in theory, as demand for goods and services falls, so should prices.
The Bank of England is tasked with keeping inflation at 2%, and hiking interest rates is a way of trying to reach this target.
In this scenario, the losers are those with debt.
First-time buyers will lose out to cheaper mortgage rates, and those on tracker or standard variable rate mortgages are usually impacted by hikes to the base rate immediately.
Those on a fixed-rate deal tend to be safe if they fixed when interest rates were lower – but their bills could drastically increase when it’s time to remortgage.
The cost of borrowing through loans, credit cards and overdrafts also increases when the base rate rises.
However, the winners in this scenario are those with money to save.
Banks tend to battle it out by offering market-leading saving rates when the base rate is high.
How to protect your finances
Despite GDP growing, you might still be feeling the pinch from the higher cost of living.
But there are ways you can keep your cash safe.
Make sure you go through all your bank statements and accounts so you know what your income and outgoings are every month.
You can save money by moving to a cheaper mobile phone tariff or by axing subscriptions you don’t need like Netflix or Amazon Prime.
If you’ve got any outstanding debts, don’t ignore them as it will only make your financial situation worse.
Stay on top of what you owe and always repay priority debts.
There are plenty of organisations where you can seek debt advice for free.
You should also check what benefits you are eligible for as you might be able to claim without realising.
Entitledto’s free calculator works out whether you qualify for various benefits, tax credits and Universal Credit.
If you don’t want to register, consumer group moneysavingexpert.com and charity StepChange both have benefits tools powered by Entitledto’s data that let you save your results without logging in.
There is also emergency funding available for struggling households, which is dished out by local councils.
The Household Support Fund is designed to help those on a low income or benefits cover the cost of food, energy and general living costs.
What help is available varies depending on where you live as each council sets it own eligibility criteria.
It’s worth getting in touch with your local authority to see what you might be able to get.
You can find what council area you fall under by using the government’s council locator tool online.
Are you missing out on benefits?
YOU can use a benefits calculator to help check that you are not missing out on money you are entitled to
Charity Turn2Us’ benefits calculator works out what you could get.
Entitledto’s free calculator determines whether you qualify for various benefits, tax credit and Universal Credit.
MoneySavingExpert.com and charity StepChange both have benefits tools powered by Entitledto’s data.
You can use Policy in Practice’s calculator to determine which benefits you could receive and how much cash you’ll have left over each month after paying for housing costs.
Your exact entitlement will only be clear when you make a claim, but calculators can indicate what you might be eligible for.