British Economy Recovers Slightly in April but Strikes Set to Keep a Lid on Growth

LONDON (AP) -- The British economy bounced back in April amid strong sales at bars and pubs as well as a rebound in car purchases, official figures showed Wednesday.

The Office for National Statistics said the economy grew by 0.2% during the month. The increase was in line with expectations but failed to fully recoup the 0.3% contraction in March.

Though the British economy has managed to avoid falling into a recession -- two consecutive quarters of negative growth -- it has barely grown since the post-pandemic bounceback, hobbled by high interest rates as well as strike action across an array of sectors, including in health, education and transport.

Samuel Tombs, chief U.K. economist at Pantheon Macroeconomics, said he expects second-quarter growth to be unchanged from the first as the strikes "rumble on." He also predicted that the extra public holiday in May for King Charles III's coronation will weigh on economic activity. Further out, he expects lower energy prices for households to boost growth in the second half of the year.

"A slow but steady recovery should emerge in the second half of this year," he said.

One clear uncertainty surrounding the British economy is high inflation -- currently standing at 8.7% -- and the associated sharp spike in interest rates. Financial markets are pricing in a further quarter-point increase from the Bank of England next week, which would take its base rate up to a 15-year high of 4.75%.

Higher interest rates help lower inflation by making it more expensive for households and businesses to borrow, meaning they potentially spend less, thereby reducing upside demand pressure on prices.

"With recent data showing prices and wages are still rising sharply, further rate hikes could act like a vice-grip on spending power going forward," said Susannah Streeter, head of money and markets at stockbrokers Hargreaves Lansdown.