Prospects for the economy are stronger, which makes the timing of the elections even more peculiar | Business News

After a very strong start to 2024, during which the UK economy achieved its strongest growth in two years, things stagnated again in April.

That the economy flatlined during April It was no surprise, given a few factors.

One of them was the start of Easter, which caused some consumer spending that would normally have occurred in April to be brought forward to March.

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The other, more pertinent factor was the climate.

The Office for National Statistics notes in its statement that rainfall during April was 155% higher than the long-term average – making this the wettest April in more than a decade.

The arrival of Storm Kathleen late in the first week of April brought heavy rain to Scotland, Wales, parts of Northern Ireland and the West Country. In some parts of the country, things were even worse, with Edinburgh recording its second wettest April in 188 years. The last few weeks of April were also notably colder than normal.

All of this appears to have had an impact on a wide range of sectors of the economy, including retail, construction – which was particularly affected by the strong winds – and bars, restaurants and cafes.

The good news for the Prime Minister, such as it is, is that during the three months to the end of April, the economy grew by 0.7%. This represents a modest degree of momentum carried over from the first three months of the year and is still a very reasonable pace given the recent past.

The best news is that things will likely have improved by May. Survey data for May, particularly the Purchasing Managers’ Index (PMI) outlook survey, suggests that the services sector – which represents just over three-quarters of UK economic activity – continued to expand during the month, while the manufacturing industry looks set to make a comeback. also for growth.

May’s PMI reading for manufacturing was the best since July 2022. Other measures of activity pointing to stronger growth during May include data published by the British Retail Consortium, which pointed to a monthly increase in retail sales , helped by solid trading over the first bank holiday weekend of the month.

This should come as no surprise: the overall rate of inflation is falling – although not yet fast enough to convince the Bank of England to lower interest rates – while the latest cuts in national insurance will have appeared in pay packages at the end of April and may have served to inject a little more confidence among consumers. At the same time, as salary data published on Tuesday this week shows, average earnings continue to grow more strongly than the overall rate of inflation.

Add to that the expected boost to the economy from the European football championships and the Olympic Games and consumer spending is expected to continue to grow during June and July. Meanwhile, manufacturing also looks set to continue its recent recovery in activity, as the UK’s main trading partners in Europe and the United States also see a recovery in demand.

As Sanjay Raja, Deutsche Bank’s chief UK economist, said in a note to clients this morning: “April’s flat impression is likely to be temporary. And furthermore, we continue to see GDP maintaining its upward momentum throughout the rest of the year. Our updated models point to GDP growth of 0.3-0.4% quarterly in the second quarter of 2024.

“It is clear that a cyclical recovery is underway. The consolidation of real disposable incomes will likely give way to the consolidation of household consumption.”

Raja believes the economy will grow 0.8% this year.

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Meanwhile, an interest rate cut from the Bank of England is coming. It is possible, given the rise in unemployment during the three months to the end of April, that the Bank of England was tempted to follow the example of the European central bank and cut interest rates next week, were it not for the general election.

As it stands, an August rate cut now seems highly likely.

All of this should continue to maintain growth throughout the summer and fall.

All of which makes Rishi Sunak’s decision to head to the country early increasingly peculiar.