The UK economy expanded in the first month of the year as gross domestic product (GDP) grew by 0.2%, according to the Office for National Statistics (ONS).

The figure signals that the UK could be heading out of the recession it fell into at the end of 2023.

Retail and housebuilding, two sectors that struggled in December, helped lead the rebound in January.

ONS director of economics statistics Liz McKeown said: “The economy picked up in January with strong growth in retail and wholesaling. Construction also performed well with housebuilders having a good month, having been subdued for much of the last year.

“These were partially offset by falls in TV and film production, lawyers and the often-erratic pharmaceutical industry.

“Over the last three months as a whole, the economy contracted slightly.”

The measure of everything produced in the UK is a metric called gross domestic product (GDP).

In the three months to January, GDP is estimated to have fallen by 0.1% compared with the three months to October.

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Services grew by 0.2% in January and was the largest contributor to the rise in GDP, but showed no growth over the three-month period. Production output fell by 0.2% in January, and in the three months to January it was also down by 0.2%.

Construction output grew by 1.1% in January, but in the three-month period it fell by 0.9%.

As official figures show the economy grew at the start of the year, chancellor Jeremy Hunt said: “While the last few years have been tough, today’s numbers show we are making progress in growing the economy – part of which makes it possible to bring down national insurance contributions by £900 this coming year.

“But if we want the rate of growth to pick up more we need to make work pay which means ending the unfairness of taxing work twice.”

Yael Selfin, chief economist at KPMG UK, said the Bank of England to begin cutting interest rates this summer as economy is “likely to have emerged from recession but outlook remains weak”.

She said: “The weak economic backdrop coupled with an improving outlook for inflation should allow the Bank of England to begin cutting interest rates from the summer onwards, despite the tax cuts announced in last week’s budget.

“Nevertheless, the overall policy stance will still be restrictive with interest rates expected to remain above the neutral rate until summer 2025.”

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Alice Haine, personal finance analyst at Bestinvest, said UK households should remain cautions even as the UK economy recovers.

She said: “While a more upbeat GDP reading and the prospect of inflation and energy prices easing further from here is good news, households should maintain a cautious stance. Borrowing and living costs remain high, so constraining expenditure, paying down expensive debts where possible and building up a robust emergency savings pot may be a wise approach for now.”

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