UK economy grows by 0.4% in May; households face £94 water bill increase over next five years | Business

July 11, 2024 Stan

Key events

Back to the UK economy returning to growth in May, which is a boon for Keir Starmer’s government.

Sanjay Raja, chief UK economist of Deutsche Bank, noted that GDP surprised to the upside yet again, expanding by 0.4% month on month, driven by stronger services activity and construction output.

While the warmest May on record may have helped activity in the services and construction sectors, UK GDP is now undeniably picking up steam. The short-lived recession is now very much behind us. It’s now likely that Q2 growth could come close to the mark set in Q1 (our current nowcast models point to a 0.6% quarter-on-quarter reading with risks skewed to the upside). Equally, upside risks to our 2024 growth projection of 0.8% are also now crystallising.

This should be a boon for the new Labour government with growth now likely to outstrip the OBR’s 2024 GDP forecasts, partially offsetting some of the projected increase in interest rate costs. We will update our growth projections soon.

During the general election, the Liberal Democrats called for Ofwat to be abolished and a new water regulator to be established with greater powers.

Today, the Lib Dems are calling on Ofwat use its existing powers to crack down on large water bill rises. The party is also calling on the government to implement a ban on water company executive bonuses until discharges and leaks end.

The Lib Dems’ environment spokesperson Tim Farron said:

Any insulting price hikes by water companies must be blocked.

It is a national scandal that these disgraced firms are demanding more money from families and pensioners in a cost of living crisis, all whilst dumping raw sewage into our rivers.

After years of Conservative Ministers letting these shameful polluters get away with it, we now need tough action, starting with a ban on bonuses and a block on large bill hikes.

Communities spoke loudly at the election, demanding an end to the sewage scandal and water firms stuffing their pockets with bonuses and dividends. The government and regulator must listen to the country.

In return for being able to increase their bills, water companies must invest in the following, the regulator said:

Improving the environment

Delivering more than 2,500 projects to reduce spills from storm overflows
Upgrading over 1,500 wastewater treatment works
Improving or protecting over 15,000km of rivers across England and Wales
Expanding use of nature-based solutions – with £2bn of green schemes proposed
Putting the sector on track to meet net zero emissions by 2050

Improving service

Improving drinking water quality – targeting 21% fewer contacts received by water companies
Stretching targets on reducing sewer flooding
Better customer service incentives – companies only rewarded for good customer service compared to other sectors

Protecting our water and wastewater system

A major expansion in new water assets, including nine new reservoirs and progressing seven large-scale water transfer projects
Delivering 425 million extra litres of water supply per day by 2030
Getting leakage down by a further 13% – to the lowest level since privatisation
The biggest smart meter rollout to date, with 10 million to be delivered
Tripling the rate of replacing water mains

The water regulator said companies should triple investment in new infrastructure and resources compared to 2020-25, to improve the environment, resilience, and service – from £11bn to £35bn. Nearly 90% of this investment is needed to meet legal requirements. Ofwat added:

Companies have proposed increased support for those struggling to pay, with an estimated 1.4 million more customers to pay reduced tariffs.

The increases in average water bills range from £66 at Anglian Water over the next five years, £99 at Thames Water, £107 at Yorkshire Water and £199 at Southern Water.

Despite the increases, water bills bills are on average £44 per year lower than what companies proposed, Ofwat said in its draft determinations for the water industry.

This is mainly because we have challenged companies’ view of what they need to spend, and because some companies based their plans on an investor return above the level we think is fair.

Water bills. Photograph: Ofwat

Introduction: UK economy grows by 0.4% in May; households face £94 water bill increase over next five years

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

England are through to the final in the euro men’s football tournament, and the UK economy has returned to growth.

In other news, the average water bill is set to rise by £94 over the next five years in England and Wales, the water regulator Ofwat said.

The 21% increase, or £19 a year on average, is intended to fund investment at water companies for improvements such as fixing leaking pipes and tackling the discharge of sewage into rivers and seas. Is is lower than water companies had asked for.

The UK economy grew by 0.4% in May after showing no growth in April, resuming its recovery from last year’s recession, according to official figures.

April was a very wet month, putting consumers off from spending on the high street.

The outcome is better than the 0.2% growth forecast by econommists.

GDP grew by 0.9% in the three months to May compared with the the three months to February, driven by 1.1% expansion in services output, according to the Office for National Statistics.

In May alone, services output rose by 0.3%, the same rate as in April (revised up from 0.2%), and was the biggest contributor to growth.

Production output grew by 0.2% in May following a drop of 0.9% in April, and posted zero growth in the three months to May.

Construction output grew by 1.9% in May, following a fall of 1.1% in April (revised higher from a fall of 1.4%), and declined by 0.7% in the three months to May.

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