Recession set to end as City looks ahead to interest rate cuts to boost economic growth

Confirmation that the UK is out of a short and shallow recession is expected to arrive on Friday morning, when the latest reading on the size of the economy is out. 

The Office for National Statistics is expected to reveal growth of 0.4% in gross domestic product, after two consecutive quarters when shrinking GDP took the UK into the widely accepted technical definition of recession. 

 While that turnaround will be welcome, it marks a return to levels of growth that remain stubbornly lacklustre. And monthly data for March is expected to be even more anaemic, at 0.1%. 

Analysis from HSBC expects a mixed set of numbers on Friday at sector level.

The UK’s biggest bank said: “Notably, construction may see a rebound following the poor-weather induced decline in February, while manufacturing output is likely to weigh on industrial production. 

 “The manufacture of automobiles was unseasonably strong in February, rising at its fastest rate for the month in over 20 years, we expect this to unwind in March, weighing on overall manufacturing growth”. 

 After the Bank of England left interest rates on hold at a 16-year peak of 5.25% for the sixth consecutive meeting of its monetary policy committee, Friday’s GDP data will be under scrutiny. 

 City experts are hoping that the first rate cut of the post-pandemic era could come as early as next month. The MPC has signalled its determination to keep inflation moving down toward its 2% official target – the latest consumer price index read 3.2% for March – but it is also coming under pressure for a cut to boost growth.  

 Lindsay James, investment strategist at Quilter Investors, said: “Early signs of a little life in the UK economy … combined with an expected further drop in headline CPI later this month, should lay the groundwork for base rate cuts by the end of the summer, gradually easing the pressure on consumers as we move through the year.”

 Rate cuts should ease financial pressure oh households by making borrowing cheaper, helping boost the affordability of loans and mortgages and opening up more room for consumer spending. 

 With the economy clambering back onto the flatline, the calls for rate cuts are likely to get louder. 

CEO of financial comparison site Finance.co.uk, Edward Newman, said: “With inflation rumoured to fall below the 2% target as early as next month, it’s not unreasonable to expect to start seeing cuts sooner rather than later,” adding:

“The longer the cuts are delayed, the more expensive borrowing will become, especially for mortgage holders who are coming to the end of their fixed-rate deals.”