New uncertainties

Ukraine ‘shock’ hangs over strong rise in UK GDP

Rishi Sunak
Rishi Sunak: Ukraine creating uncertainty

Britain’s economy rebounded from the Covid restrictions more strongly than expected in January, though forecasts have already been eclipsed by the consequences of Russia’s invasion of Ukraine.

The data today may influence Bank of England policymakers who meet next week to decide interest rates but the Ukraine conflict now has to be factored in to policymaking.

The Office for National Statistics said gross domestic product for January grew by 0.8% in month-on-month terms in January after a 0.2% decline in December.

All the main sectors of Britain’s economy grew by more than expected, with the wholesale and retail sector being a particular driver of the vast services sector, the ONS said.

Suren Thiru, head of economics at the British Chambers of Commerce, said: “While there was a strong rebound in output in January as the impact of Omicron started to ease, the figures have been pushed into the rear-view mirror by renewed domestic and global shocks, including Russia’s invasion of Ukraine.”

Alpesh Paleja, CBI Lead Economist, said: “It’s clear that causes for concern are growing quickly. Conflict in Ukraine is putting considerable pressure on energy and commodity prices, which, if sustained, will push inflation even higher than expected. The need to press ahead with deploying new power generation through renewables, nuclear and increasing storage capacity, remains acute.

“Beyond the immediate challenges we face, urgent action is needed to push the UK onto a higher growth trajectory.

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“The priority must be a relentless focus on investment-led growth, through introducing a permanent replacement for the super-deduction, and reforming the tax system to incentivise green capital spending.”

Chancellor Rishi Sunak said:  “We have provided unprecedented support throughout the pandemic, which has put our economy in a strong position to deal with current cost of living challenges. We are continuing to help people where we can, including through over £20 billion of support this financial year and next.

“We know that Russia’s invasion of Ukraine is creating significant economic uncertainty and we will continue to monitor its impact on the UK, but it is vital that we stand with the people of Ukraine to uphold our shared values of freedom and democracy and ensure Putin fails.”

Pat McFadden, Shadow Chief Secretary to the Treasury, said: “This morning’s data provides little comfort as households look ahead to a year of surging inflation, weak earnings growth and tax rises.

“The Tories have let the cost of living crisis spiral since September – and now they’re going to make it worse by hitting working people and businesses with a tax hike at the worst possible time.

“The Conservatives should halt their National Insurance hike in April – and they must look again at Labour’s proposal for a one-off windfall tax on oil and gas producers to cut household energy bills by up to £600.”

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