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UK economy grows by 0.1% in the first quarter but inflation continues to weigh

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A member of the public walks through heavy rain near the Bank of England in May 2023.

Dan Kitwood | Getty Images News | Getty Images

LONDON — The U.K. economy grew by 0.1% in the first quarter, following an unexpected contraction in March, official figures showed on Friday.

Economists polled by Reuters had forecast the same growth figure for the first three months of the year, but expected stagnation in March, versus the 0.3% fall recorded.

The construction sector expanded by 0.7%, while manufacturing performance went up by 0.5% in the first quarter, with 0.1% growth logged in services and production. On a monthly basis, services dropped by 0.5% in March, particularly because of declines in wholesale and retail trade and motor repairs.

The national statistics agency said there was no growth in real household expenditure, as incomes remained under the squeeze of higher prices.

Ruth Gregory, deputy chief U.K. economist at Capital Economics, said in a note that the quarterly figure “suggests that low real income and high interest rates, as well as the unusually wet weather, are dampening activity,” also citing widespread strike action this year. She assessed that declines in government consumption and net trade made for “gloomy reading.”

There’s still no recession, but with the full drag from higher interest rates yet to be felt it is too soon to sound the all-clear,” Gregory added.

Persistent inflation

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