The UK economy rebounded more than expected in January, providing a modest boost to the chancellor as he puts the finishing touches to next week’s budget.
Growth of 0.3% month on month was driven by a broad-based return of activity across the education, health and recreation sectors, including the return of football’s Premier League after the winter World Cup, the Office for National Statistics (ONS) said.
The rise of private GPs and other private health services also played a part as more people with health problems went private amid lengthy NHS waiting lists.
City economists had expected growth of only 0.1% month on month after a combination of industrial action and inflation weighed on the economy. It followed a 0.5% slump in GDP in December.
The latest figures are expected to give the chancellor, Jeremy Hunt, a slight boost before the budget, when he will set out the government’s tax and spending policies.
The prime minister, Rishi Sunak, said “confidence is returning” to the UK economy, adding it was doing “better than people had feared”.
Hunt said that while the UK economy had proved more resilient than many expected, “there is a long way to go”.
He added: “Next week, I will set out the next stage of our plan to halve inflation, reduce debt and grow the economy – so we can improve living standards for everyone.’’
Most forecasts for GDP growth in 2023 have improved since the Treasury’s autumn statement in November, when analysts were predicting a long recession in the wake of Liz Truss’s destabilising mini-budget.
Most analysts expect a milder recession than they did at the beginning of the year, although the recovery is forecast to be equally shallow.
However, analysts said the economy lagged behind the UK’s rivals in the G7 and the risk of a recession in the first half of the year was high.
The ONS said the economy was still 0.2% smaller than its pre-pandemic peak.
Darren Morgan, the ONS director of economic statistics, said a return of children to classrooms after unusually high absences in the run-up to Christmas was one of the main reasons a 0.5% fall in December was partly reversed in January.
“The Premier League clubs returned to a full schedule after the end of the World Cup and private health providers also had a strong month. Postal services also partially recovered from the effects of December’s strikes,” he said.
“These were somewhat offset by a notable drop in construction, with a slowdown in infrastructure projects and housebuilding having another poor month, partly due to heavy rainfall.”
Yael Selfin, the chief UK economist at KPMG, said lower wholesale energy prices would give the economy a boost, “but this may not be sufficient to stave off a recession in the first half of this year, as consumer spending remains weak with households continuing to be squeezed by elevated prices and higher interest rates”.
Trade flows were also depressed in January, continuing a downward trend since the UK quit the EU’s single market and customs union.
Samuel Tombs, the chief UK economist at the consultancy Pantheon Macroeconomics, said analysis of the latest data showed “exports remain impeded by Brexit”, and the UK still lagged behind other industrialised economies.
The ONS said the deficit in goods and services trade widened by £3.5bn in January to £27.6bn in the three months to January, “as exports fell by more than imports”.
The ONS estimates that the pre-2021 data on exports to the EU would be about 5% higher than currently reported, if they had been based on a previous system of customs declarations.
“Accordingly, the damage from Brexit is even larger than the trade data initially suggest,” Tombs said.
Business groups said the rise in GDP would do little to ease the pressures on small firms suffering from high inflation and a rise in business taxes.
Tina McKenzie, the policy vice-chair at the Federation of Small Businesses, said: “While January’s figures are a glimmer of hope, the flat growth over the previous three months means we’re not out of the woods yet, with tough trading conditions persisting for many small firms.
“Plenty of challenges remain. Inflation has only barely eased, and the tax burden for small firms is as high as it’s been for seven decades.”
The UK economy narrowly avoided sliding into recession at the end of 2022 but the Bank of England has forecast a recession in the first half of this year, while inflation and interest rates remain high, depressing consumer spending and business investment.