National accounts for the first quarter showed the rise was fuelled by consumer spending and net trade, though slightly offset by weaker business investment and government consumption. Real household income continued to grow, but a higher saving ratio suggests consumers remain cautious.

With rising consumer confidence, sustained real income gains are expected to drive stronger spending, potentially leading to a decent consumer-led recovery.

Peter Arnold, EY UK chief economist, said: “The income breakdown indicated that Q1’s 0.4% rise in consumer spending was supported by continued strong growth in real household disposable income, which increased 0.7% for the second consecutive quarter. This meant that the household saving ratio rose to 11.1% in Q1 from an already-high 10.2% in Q4 2023.

“Looking ahead, the EY ITEM Club expects GDP to grow at a decent pace in Q2. The composite Purchasing Managers’ Index (PMI) averaged the same level in Q2 as Q1. However, the earlier-than-usual Easter appeared to boost consumer activity in March at the expense of April, while strike action in the healthcare sector in June will likely drag on output this month. Therefore, the EY ITEM Club thinks quarter-on-quarter GDP growth will probably come in a bit softer than Q1’s strong rise.

“Further ahead, the EY ITEM Club expects low inflation and persistently strong pay growth to mean real household incomes continue to grow strongly. Provided rising consumer confidence results in households gradually moving away from the cautious sentiment exhibited over the last year, the EY ITEM Club thinks there is a prospect of a decent consumer-led recovery.”