The Colombian Peso's Rise: USD-COP Exchange Rate Trends

Economic

Summary:

Explore the recent strength of the Colombian peso (COP) against the US dollar (USD). This article examines the factors driving the peso's rise, its implications, and compares it with other Latin American currencies.

The Colombian peso (COP) has been making headlines recently, defying historical trends by exhibiting remarkable strength against the US dollar (USD). This article delves into the recent movements of the USD-COP exchange rate, exploring the factors driving the peso's rise, its potential implications, and a comparison with other Latin American currencies.

May 16th Snapshot

On May 16th, 2024, the USD opened trading at an average of 3,824.06 COP. This seemingly small change reflects a broader trend of the USD's decline against the COP.

Looking Back: A Year of Change

While the daily change might seem insignificant, a broader perspective reveals a significant shift. Compared to the previous week, the USD has fallen by 0.56%, but the real story lies in the annual comparison. Over the past year, the USD has depreciated a staggering 13.87% against the COP. This dramatic decline signifies a major turnaround for the Colombian currency.

Recent Trends: Volatility Calms, Peso Holds Strong

Recent weeks have shown a decrease in volatility for the USD-COP exchange rate. This calmness follows a more turbulent year. While a clear upward or downward trend hasn't emerged yet, the peso has maintained its strength compared to the USD.

Year-over-Year Comparison: A Historic Shift

The Market Representative Rate, a key indicator of exchange rate movement, paints a compelling picture. As of May 16th, 2024, this rate has fallen by 18.32% compared to the same day in 2023. This significant decline highlights the Colombian currency's impressive recovery against the USD.

Central Bank's Forecast: Optimism Prevails

Adding to the positive outlook, the Central Bank of Colombia has forecasted an average exchange rate of 4,081 pesos per dollar by the end of 2024. This projection stands in stark contrast to previous trends and reflects growing confidence in the peso's continued strength.

2024 So Far: A Period of Peso Power

The first few months of 2024 have been particularly favorable for the COP. It has consistently traded within the 3,900 to 4,000 peso range against the USD, demonstrating a sustained period of relative strength.

Latin American Solidarity: Regional Currencies Gain Ground

The Colombian peso's appreciation isn't happening in isolation. Other Latin American currencies, like the Brazilian real and the Mexican peso, have also shown similar trends of strengthening against the USD. This regional phenomenon suggests broader economic factors at play.

Unpacking the Drivers: Why is the Peso Rising?

Several key factors are contributing to the Colombian peso's current strength:

Shifting Global Landscape: Global economic uncertainties, including potential interest rate hikes in the US, are leading some investors to diversify their portfolios. Colombia, with its growing economy, is emerging as an attractive alternative investment destination.

Colombia's Growth Story: Colombia's economy is experiencing steady growth, attracting foreign investment and boosting investor confidence. This inflow of foreign capital increases demand for the COP, pushing its value upwards.

Commodity Boom: Colombia is a major exporter of commodities like oil and coal. The recent surge in global commodity prices has significantly benefited the Colombian economy, generating additional foreign exchange reserves and further strengthening the peso.

Central Bank Intervention: The Colombian Central Bank has played a crucial role by carefully adjusting interest rates and intervening in the foreign exchange market when necessary. These measures have helped to stabilize and strengthen the COP.

The Road Ahead: Navigating a New Reality

While the peso's current strength offers advantages, there are also potential challenges:

Impact on Exporters: A stronger peso can make Colombian exports less competitive in the global market, potentially impacting export-driven businesses.

Imported Inflation: A cheaper USD can lead to higher import costs, potentially contributing to inflationary pressures within Colombia.

Looking Forward: A Dynamic Future

The future trajectory of the USD-COP exchange rate remains uncertain. Global economic fluctuations, US Federal Reserve policies, and Colombia's domestic economic performance will continue to influence the exchange rate.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Samantha Luan

Economic

Inflation data from the world's three largest economies - China, the United States and euro zone - sets the tone for world markets this week, and Asia gets the ball rolling on Monday following the April figures out of Beijing at the weekend.

The general market backdrop on Monday should be positive with a U.S. interest rate cut in September back on the cards, Wall Street revisiting recent peaks, European indexes at new highs, and China and Hong Kong pushing Asian stocks higher.

Add in oil prices slipping to two-month lows and a steady dollar pushing down on currency market volatility, and financial conditions are broadly loosening.

But much of that may be offset by the news that the Biden administration will announce new China tariffs on strategic sectors, including a major hike in levies on electric vehicles.

The full announcement, expected on Tuesday, will maintain existing tariffs on many Chinese goods set by former President Donald Trump, and will also add new tariffs to semiconductors and solar equipment.

As analysts at Morgan Stanley note, the inflationary impact of an escalating U.S.-China tariff war will fray nerves in global government bond markets. In truth, sentiment across all markets will likely be negatively affected.

Figures on Saturday showed that consumer price inflation in China last month was a bit stronger than expected, but producer deflation deepened, an indication that pipeline price pressures remain firmly to the downside. Inflation, Tariffs Dominate Market Landscape_1

Inflation, Tariffs Dominate Market Landscape_1

Also on Saturday, figures showed that new bank lending in China fell more than expected in April while broad credit growth hit a record low, underscoring how sluggish the economic recovery is and the need for more action from Beijing to rev it up.

The U.S. and euro zone inflation readings for April will be released on Wednesday and Friday, respectively, which investors hope will give a clearer picture of the interest rate path ahead in the coming months.

Before that, investors in Asia have Indian inflation on their plates too. Economists polled by Reuters expect a slight cooling to 4.8% from 4.9% in March, which would be the lowest since June last year. Inflation, Tariffs Dominate Market Landscape_2

Inflation, Tariffs Dominate Market Landscape_2

While headline inflation has moderated recently, food prices, which account for nearly half the consumer price index basket, have remained elevated, squeezing household budgets.

Inflation is expected to return to the Reserve Bank of India's 4% target next quarter, also when the central bank is expected to cut rates, according to a Reuters poll.

But growth is holding up well and the RBI may want to wait for the Fed to cut rates before moving, so as not to weaken the rupee which is languishing at record lows against the dollar. Money markets put a Q2 rate cut at around a 50-50 probability.

Here are key developments that could provide more direction to markets on Monday:

- India CPI inflation (April)

- Japan money supply (April)

- Australia business confidence (April)

Source: Reuters

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Devin

Economic

Central Bank

The Bank of England has sent a new signal that borrowing costs will fall earlier and further across Europe than in the United States, setting markets up for major shifts as investors play a monetary policy divide opening up across the Atlantic.

Investors see European stocks and debt leading global markets this year as rate cuts boost spending, softer inflation burnishes bonds and weaker currencies lift exports.

Traders stepped up bets for UK easing after the BoE on Thursday held rates at 16-year highs of 5.25% but trimmed inflation forecasts, pushing sterling down and stocks higher.

That came after Sweden cut rates for the first time since 2016, while Switzerland cut rates in March and the European Central Bank has flagged a June cut. In contrast, the U.S. Federal Reserve is set to keep rates high for longer.

"This is the European pivot," said Florian Ielpo, head of macro at Switzerland's Lombard Odier Investment Management, who is positive on European and UK stocks. Since 2020, the United States has generated the lion's share of global equity gains.

Paul Flood, multi-asset portfolio manager at Newton Investment Management, said he was buying UK stocks on valuation grounds and was positive on UK government bonds because there was more potential for BoE rate cuts ahead.

Doves Fly

Britain's exporter-focused FTSE 100 hit a new record high after the BoE meeting. Europe's Stoxx 600 index is up 2% so far this week, poised for its best week since January.

Money markets are pricing in around 55 basis point (bps) of BoE rate cuts in total by year-end, 70 bps from the ECB and just 43 bps from a Fed still grappling with strong inflation.

Economists polled by Reuters expect the U.S. economy to expand by 2.5% this year, versus 0.5% in the euro zone and 0.4% in the UK, as lavish government spending dubbed "Bidenomics" spurs investment but raises debt and the deficit.

In terms of growth momentum, investors see Europe doing better, boding well for assets in the region over the longer term.

"Europe is really accelerating, albeit from a weaker base at a time where the U.S. economy is cooling from a stronger starting point," said Hugh Gimber, global market strategist at J.P. Morgan Asset Management.

Investors are querying whether the U.S. will run out of steam, other strategists said.

But in the short term, if the U.S. can run up its debt and its deficit, then rates in the US will likely stay higher than in Europe, said Societe Generale strategist Kit Juckes.

Risky Pivots

European government bonds could outperform the U.S. but are likely to stay volatile as the inflation path worldwide remains unpredictable, investors and analysts said.

The BoE, the ECB and other European central banks might regret sounding too dovish too soon, Lombard Odier's Ielpo said.

In the U.S., the Fed sent a strong signal in December that rate cuts were coming but then turned more hawkish after financial conditions became euphoric and inflation stalled above its target.

UK gilts have lost investors 3.1%, this year, compared with 2.1% losses in the U.S. and 1.2% in the euro zone, based on LSEG data. Europe's Rush for Rate Cuts Shifts Global Market Power Away from US_2

Europe's Rush for Rate Cuts Shifts Global Market Power Away from US_2

BlueBay Asset Management portfolio manager Neil Mehta said the firm does not like bonds in the UK, partly because of relatively high inflation.

The yield on Britain's rate-sensitive two-year gilt slipped 3 bps after the BoE decision to 4.28% as debt prices firmed slightly.

The BoE last diverged significantly from Fed policy in August 2016, when it cut rates by a quarter point to insulate the economy from Brexit while the Fed was on hold and preparing to raise.

The ECB was a holdout dove with rates below zero from 2014 to 2022 but has followed the Fed since.

The divergence theme would mostly play out in currency markets, Mehta added, with the dollar staying strong, in a further risk for inflation in Europe as import prices rise.

The euro is down 2.6% so far this year to $1.07, Sterling is down roughly 2%.

Matthew Swannell, economist at BNP Paribas, said this was not a particular risk for UK, whose biggest trading partner is the European Union.

"So we do think the Bank of England can move before the Federal Reserve, and likewise the ECB (can too)," he said.

Source: Reuters

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Alex

Economic

Two years ago, central banks around the world started hiking interest rates. At the time many commentators, including this one, predicted that the end of years of easy money would cause asset prices to collapse and economies to buckle. Yet no recession arrived. Indeed U.S. economic growth picked up after 2022. Following the briefest of bear markets, American stocks hit a new high.

In his book "Expert Political Judgment: How Good Is It? How Can We Know?", published in 2005, the political scientist Philip Tetlock argues that experts often provide rationalisations for their forecasting failures after the event. One of the most common is "it would have happened except for…". There is no shortage of such arguments to explain the absence of an economic hard landing.

To start, it is worth pointing out that the bears did not get everything wrong. Bond markets in 2022 suffered their worst 12-month performance since the introduction of British consols in 1753, according to Professor Edward McQuarrie of Santa Clara University. Many speculative investments have crashed. Commercial property markets in many parts of the world are in distress.

Nevertheless, the transmission mechanism between monetary policy and the economy appears weaker than in the past. Yields on long-term U.S. government debt have been lower than short-term bond yields for 18 months. Investors formerly considered such an inverted yield curve as the most reliable leading indicator of a recession.

Economic Hard Landing Is Delayed but Not Cancelled_1

Covid-19 stimulus lingered long after the emergency was over. During the pandemic, the federal government in Washington made vast transfers to American households. Excess consumer savings peaked at $2.5 trillion in September 2021, according to Julien Garran of the Macrostrategy Partnership. The subsequent drawing down of this savings pile has boosted consumption.

Furthermore, much of the liquidity provided to the financial system by the Federal Reserve in 2021 and 2022 initially flowed back into the central bank's overnight reverse repo facility. Garran estimates that the recent outflow of these deposits from the Fed has pumped a net $1.25 trillion into U.S. markets, more than offsetting the impact of higher interest rates and the Fed's shrinking balance sheet.

Jamie Lee of The Grantham Foundation has another explanation for why higher interest rates have not choked the economy. Before the financial crisis of 2008, central banks did not pay interest on excess bank reserves. As a result, commercial banks immediately felt the pain of tighter monetary policy. Lee points out that deposits at the central bank are the safest and most liquid form of money, used for settling transactions between lenders. In the past these deposits were scarce and, because they did not attract interest, expensive for banks to hold.

Since 2008, however, the Fed has been paying interest on reserves. They have become super-abundant, rising from $44 billion in March 2008 to $3.5 trillion by March 2024. When the central bank hikes interest rates, it therefore creates money which is paid into the banking system, boosting liquidity. "When the Fed 'raises rates', it leaves the bid-ask spread for final settlement money unchanged, at virtually zero. Tightening is not tightening after all," Lee explains. In this sense, more restrictive monetary policy is actually easier.

Economic Hard Landing Is Delayed but Not Cancelled_2

There are two other reasons why the U.S. economy has shown itself less sensitive to higher interest rates. Torsten Slok, chief economist of Apollo Global Management, argues that both homebuyers and corporations took advantage of easy money conditions to borrow at low interest rates. Because interest payments on most U.S. residential mortgages are fixed for decades, homeowners have been insulated against rate hikes.

Meanwhile, large U.S. corporations extended the maturity of their debt during the pandemic. With the investment-grade corporate debt market having grown from $3 trillion in 2009 to $9 trillion today, American companies have become less sensitive to short-term movements in interest rates, according to Slok.

At the same time, large companies are now receiving more interest income on their deposits. This explains the curious fact that net corporate interest payments in the United States fell after the Fed raised interest rates.

The second reason for the U.S. economy's resilience to monetary tightening is an extraordinary spending splurge by the government. The federal deficit in 2023 was $1.7 trillion, equal to 6.3% of GDP. This provided a strong tailwind for growth, employment, and corporate profits.

Economic Hard Landing Is Delayed but Not Cancelled_3

These various monetary and fiscal supports are now largely exhausted. U.S. aggregate demand and corporate earnings will face a squeeze when Washington reins in spending. Excess deposits in the Federal Reserve's reverse repo facility are at a fraction of their peak. Consumers have largely spent their pandemic-era excess savings.

Meanwhile, tighter monetary policy is pinching. The U.S. commercial real estate market is a slow-motion train wreck: vacancies are sky-high and property valuations are down sharply. Hedges against higher interest rates, which typically last for three years, are expiring and are prohibitively expensive to renew. Defaults on commercial mortgage-backed securities are rising.

Many real estate borrowers are seeking to amend and extend their maturing loans. Owners of multi-family apartments — buildings divided into multiple homes — are struggling to pay interest on floating-rate loans, many of which are held by collateralised loan obligations. Apartment construction in the United States surged during the pandemic: a record one million multi-family apartments were under construction last year. Oversupply may further depress prices, hurting both real estate developers and lenders.

Economic Hard Landing Is Delayed but Not Cancelled_4

The leveraged buyout industry is wilting under the heat of higher interest rates. The International Monetary Fund recently warned of systemic risks posed by the $2.1 trillion "opaque and highly inter-connected" world of private credit dominated by private equity groups. Private companies which cannot access the bond markets are also suffering from higher interest costs. Hordes of corporate zombies are slowly returning to their graves.

The economist Milton Friedman famously said that monetary policy works with long and variable lags. Those lags may be longer and more variable today than in earlier times. But sooner or later, they end. Tetlock's experts had another favourite comeback when faced with a mistaken prediction: "it hasn't happened yet," they said. Those who foresaw a hard landing that has so far proved elusive might say the same.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

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Thomas

Political

Around the world, populist nationalism is on the rise, often shepherded to power by authoritarian leaders. And yet the neoliberal orthodoxy — government downsizing, tax cuts, and deregulation — that took hold some 40 years ago in the West was supposed to strengthen democracy, not weaken it. What went wrong?

Part of the answer is economic: neoliberalism simply did not deliver what it promised. In the US and other advanced economies that embraced it, per capita real (inflation-adjusted) income growth between 1980 and the Covid-19 pandemic was 40% lower than in the preceding 30 years. Worse, incomes at the bottom and in the middle largely stagnated while those at the very top increased, and the deliberate weakening of social protections has produced greater financial and economic insecurity.

Rightly worried that climate change jeopardises their future, young people can see that countries under the sway of neoliberalism have consistently failed to enact strong regulations against pollution (or, in the US, to address the opioid crisis and the epidemic of child diabetes). Sadly, these failures come as no surprise. Neoliberalism was predicated on the belief that unfettered markets are the most efficient means of achieving optimal outcomes. Yet even in the early days of neoliberalism's ascendancy, economists had already established that unregulated markets are neither efficient nor stable, let alone conducive to generating a socially acceptable distribution of income.

Neoliberalism's proponents never seemed to recognise that expanding the freedom of corporations curtails freedom across the rest of society. The freedom to pollute means worsening health (or even death, for those with asthma), more extreme weather and uninhabitable land. There are always trade-offs, of course, but any reasonable society would conclude that the right to live is more important than the spurious right to pollute.

Taxation is equally anathema to neoliberalism, which frames it as an affront to individual liberty: one has the right to keep whatever one earns, regardless of how one earns it. But even when they come by their income honestly, advocates of this view fail to recognise that it was made possible by government investment in infrastructure, technology, education and public health. Rarely do they pause to consider what they would have if they had been born in one of the many countries without the rule of law (or what their portfolios would look like if the US government had not made the investments that led to the Covid-19 vaccine).

Instead, those most indebted to the government are often the first to forget what the government did for them. Where would Elon Musk and Tesla be if not for the near-half-billion-dollar lifeline they received from President Barack Obama's Department of Energy in 2010?

“Taxes are what we pay for civilised society,” Supreme Court Justice Oliver Wendell Holmes famously observed. That hasn't changed: taxes are what it takes to establish the rule of law or provide any of the other public goods that a 21st-century society needs to function.

Here, we go beyond mere trade-offs, because everyone — including the rich — is made better off by an adequate supply of such goods. Coercion, in this sense, can be emancipatory. There is a broad consensus on the principle that if we are going to have essential goods, we have to pay for them and that requires taxes.

Of course, advocates of smaller government would say that many expenditures should be cut, including government-managed pensions and publicly provided healthcare. But, again, if most people are forced to endure the insecurity and fear of not having reliable health care or incomes in old age, society has become less free. Even if multibillionaires' well-being would be somewhat crimped if each were asked to pay a little more in taxes to fund a child tax credit, consider what a difference it would make in the life of a child who doesn't have enough to eat or whose parents cannot afford a doctor's visit. Consider what it would mean for the whole country's future if fewer of its young people grew up malnourished or sick.

All these issues should take centre stage in this year's many elections. In the US, the upcoming presidential election offers a stark choice not only between chaos and orderly government but also between economic philosophies and policies. The incumbent, Joe Biden, is committed to using the power of government to enhance the well-being of all citizens, especially those in the bottom 99%, whereas Donald Trump is more interested in maximising the welfare of the top 1%. Trump, who holds court from a luxury golf resort (when he is not in court himself), has become the champion of crony capitalists around the world.

Trump and Biden have vastly different visions of the kind of society we should be working to create. In one scenario, dishonesty, socially destructive profiteering and rent-seeking will prevail, public trust will continue to crumble and materialism and greed will triumph; in the other, elected officials and public servants will work in good faith towards a more creative, healthy, knowledge-based society built on trust and honesty.

Of course, politics is never as pure as this description suggests. But no one can deny that the two candidates hold fundamentally different views on freedom and the makings of a good society. Our economic system reflects and shapes who we are and what we can become. If we publicly endorse a selfish, misogynistic grifter — or dismiss these attributes as minor blemishes — our young people will absorb that message, and we will end up with even more scoundrels and opportunists in office. We will become a society without trust and, thus, without a well-functioning economy.

Recent polls show that barely three years after Trump left the White House, the public has blissfully forgotten his administration's chaos, incompetence and attacks on the rule of law. But one need only look at the candidates' concrete positions on the issues to recognise that if we want to live in a society that values all citizens and strives to create ways for them to live full and satisfying lives, the choice is clear.

Source: The Edge Malaysia

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Kevin Du

Commodity

US Fed in focus

Gold has climbed more than 12% so far this year despite the timeline for Fed cuts being pushed back. Higher rates are typically negative for gold as it doesn't pay interest.

The key driver of the outlook for gold prices for the past year has been Federal Reserve policy. The Fed is expected to cut rates this year but has said that it needs to see more evidence of inflation easing first. Inflation data that is due next week will offer further insights into the US economy.

Our US economist expects the first rate cut in September, followed by cuts in November and December as well.

If the Fed continues its cautious approach to easing, gold prices risk a pullback. We expect gold prices to remain volatile in the coming months as the market reacts to macro drivers, tracking geopolitical events and Fed rate policy. Gold Monthly: Gold Breaks New Highs_2

Central banks keep buying gold

Gold demand from central banks posted its strongest start to any year on record in the first quarter. Central banks added 290 tonnes of gold to their official holdings in the first quarter of the year, with China being the biggest buyer. The People's Bank of China added 27 tonnes to its gold reserves during the quarter.

In April, China's central bank expanded its gold reserves for an 18th straight month adding 1.87 tonnes and taking the total holdings to 2264.3 tonnes. However, the pace of buying slowed last month amid record high gold prices.

Last year central banks bought 1,037 tonnes of gold, just shy of the all-time high of 2022. Gold tends to become more attractive in times of instability, when investors pile into safe-haven assets as a hedge against the economic climate, geopolitical tensions or inflation. Still, the record-breaking rally since mid-February might dent demand for now. Gold Monthly: Gold Breaks New Highs_3

ETFs continue to see outflows

Still, physically backed gold exchange-traded funds (ETF) flows are lagging.

During the Covid pandemic, ETF holdings were the driver behind gold's surge to then-record highs. Investor holdings in gold ETFs generally rise when gold prices gain, and vice versa. Gold ETF holdings have been in decline for much of 2024, while spot gold prices have hit a record after record.

The end of April saw global gold ETF holdings fall to 3,079 tonnes, the lowest since February 2020, according to data from the World Gold Council. Although Asia and North America saw inflows, Europe continued to register outflows offsetting inflows elsewhere. Gold Monthly: Gold Breaks New Highs_6

Gold prices risk a pullback

We expect gold prices to come down slightly from its current levels this quarter as the Fed continues its cautious approach and with geopolitics already being factored into the current price. We see prices averaging $2,250/oz in the second quarter and an annual average of $2,218/oz in 2024. We see prices peaking in the fourth quarter, averaging $2,300/oz, on the assumption that the Fed starts cutting rates in the second half of the year and the dollar and yields weaken. Gold Monthly: Gold Breaks New Highs_7

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Devin

Economic

Britain bounced back strongly from a shallow recession, providing some relief for Prime Minister Rishi Sunak who has so far struggled to deliver on his promise to grow the economy.

Gross domestic product (GDP) jumped 0.6% in the first quarter compared to the previous three months, the Office for National Statistics (ONS) said Friday. That was the best reading since late 2021, when the UK loosened lockdown restrictions, and higher than the 0.4% expansion forecast by economists.

Shoppers returned to stores, and a lack of strikes boosted transport in the first quarter. Business investment also was much stronger than expected. Growth in the month of March alone was 0.4%, well above expectations due to a bounce back in both services and manufacturing.

"The worst is behind the UK economy," said Yael Selfin, chief economist at KPMG UK. "Forward looking indicators point to further momentum in the coming months, consistent with our view that."

UK Recession Ends with Strongest Growth Since End of Lockdown_1

The pound slightly extended gains after the data, but the move was soon pared. The currency was up less than 0.1% to US$1.2533.

The figures marked a decisive end to the mildest recession in almost 70 years — a decline of 0.4% peak-to-trough in the second half of last year. The reading may complicate the Bank of England's (BOE) consideration about when to ease interest rates, with stronger growth potentially feeding inflationary pressures officials are still not certain are contained.

"All the signals since the start of this year certainly suggest things are finally starting to perk up," Liz Martins, senior economist at HSBC, said on Bloomberg Radio. "The worry would be that if those rate cuts aren't delivered, then the basis for this recovery is weakened, and maybe it takes out some of the momentum."

An upturn in economic activity is a rare bit of good news for the ruling Conservative Party after a difficult few weeks. It suffered heavy losses in the local elections, including a flagship mayoralty in the West Midlands, and has seen two of its MPs defect to the opposition Labour party.

Chancellor of the Exchequer Jeremy Hunt said the figures were "proof that the economy is returning to full health".

"For families who have been having a really tough time, this is an indication that difficult decisions we've taken over recent years are finally beginning to pay off, and we need to stick with them," Hunt said on Sky News.

UK Recession Ends with Strongest Growth Since End of Lockdown_2

While Sunak made spurring growth one of his key pledges after entering Number 10, the economy has struggled in the face of the worst cost of living crisis in generations and high interest rates.

Sunak and Hunt have claimed the economy turned the corner in early 2024 as they attempt to quell discontent among members of Parliament over the Conservatives' dire polling before a national vote. With the Tories facing a 20-point plus deficit behind the opposition Labour party, Sunak has pointed to sharp falls in inflation, lower energy bills and growing wages as signs that the economy is back on track.

"With falling inflation boosting households' spending power, as well as opening the way for a reduction in interest rates in the months ahead, the economy should be able to sustain some momentum through the year," said Ben Jones, lead economist for CBI, Britain's biggest business lobby group.

Output per head grew 0.4% in the first three months of the year, ending a series of seven consecutive quarters without positive growth. Even so, GDP per head is estimated to be 0.7% lower than the same quarter a year ago. UK Recession Ends with Strongest Growth Since End of Lockdown_3

UK Recession Ends with Strongest Growth Since End of Lockdown_3

A 0.7% increase in services output drove the economy's rebound in the first quarter. It ended three straight quarters of decline for the UK's largest sector with households' spending power being repaired by the the cost of living crisis fading. However, there was mixed news outside of services with industrial production growing 0.8% while construction output slipped 0.9%.

"This is no time for Conservative ministers to be doing a victory lap and telling the British people that they have never had it so good," Labour's chancellor-in-waiting, Rachel Reeves, said in a statement. "The economy is still £300 (RM1,782) smaller per person than when Rishi Sunak became prime minister."

UK Recession Ends with Strongest Growth Since End of Lockdown_4

The ONS said imports into the UK had not been affected by disruption in the Middle East and the Red Sea. The UK's trade deficit, when excluding precious metals, narrowed in the first quarter to £7.8 billion and has been steadily declining since the start of 2022.

"This is the start of a much brighter period for the UK economy than the last four years," said Thomas Pugh, economist at RSM UK. "Rising real earnings, tax cuts and lower interest rates will give households disposable income a significant boost in the second half of this year, and a recovery in consumer confidence will ensure that most of that increase in income is spent."