- The British economy grew by 0.6 percent in the second quarter of this year, the Office for National Statistics said on Thursday. This is in line with the expectations of economists surveyed by Reuters.
- The figure follows an expansion of 0.7% in the first quarter.
- According to a Reuters poll, economic growth stagnated in June.
Improved prospects
The British economy grew by 0.6 percent in the second quarter of this year, the British Statistics Office announced on Thursday. The country is thus continuing its cautious recovery from the recession.
The figure was in line with the expectations of economists surveyed by Reuters and follows growth of 0.7 percent in the first quarter.
Economic growth was unchanged in June, a Reuters poll showed, as activity in Britain’s key services sector fell 0.1%. Construction and manufacturing output rose 0.5% and 0.8% respectively in the month.
The UK economy has seen modest but steady growth almost every month so far this year as the country emerges from a mild recession. GDP also stagnated in April as wet weather hit retail sales and construction output.
On an annual basis, the economy grew by 0.9 percent in the second quarter, compared to a forecast of 0.8 percent.
“These figures confirm that the UK’s recovery from recession gathered pace in the second quarter, despite strikes and bad weather leading to a stagnation in economic activity in June,” said Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, in a statement.
“The strong second quarter in the UK reflects temporary momentum from recent sharp declines in inflation and a surge in consumer spending driven by events such as Euro 2024, rather than a significant improvement in the underlying UK growth trajectory,” Thiru continued.
Given weaker wage growth, high interest rates and supply constraints, the pace of growth is unlikely to continue in the second half of the year, Thiru added.
British inflation rose to 2.2 percent in July, the Office for National Statistics (ONS) released on Wednesday, just below the consensus forecast of 2.3 percent. In the previous two months, inflation was at the Bank of England’s 2 percent target, prompting the central bank to decide to cut interest rates by 25 basis points in early August.
Analysts described the July figures as evidence of consistent monetary easing over the rest of the year, despite stubborn inflation in the services sector.
In the period from April to June, British wage growth excluding bonuses cooled to a two-year low, but remained relatively high at 5.4 percent.
Richard Carter, head of fixed income research at Quilter Cheviot, said lower interest rates should “help boost economic growth by making borrowing more affordable for households and businesses” in the coming months, but cautioned that it would take some time for the impact to be felt.
The British pound rose slightly following the release of GDP figures on Thursday, and was up 0.1 percent against the US dollar and 0.2 percent against the euro at 7:35 a.m. in London.
Institutions such as the International Monetary Fund, the investment bank Goldman Sachs and the Bank of England have raised their growth forecasts for the British economy in recent months. The IMF now expects growth of 0.7 percent this year, up from 0.5 percent previously.
Factors cited include falling inflation and reforms to planning and economic rules planned by the new Labour government, which took office in July. Prime Minister Keir Starmer and Chancellor of the Exchequer Rachel Reeves have repeatedly said that boosting economic growth will be the foundation of their policies, and have set a target for the UK to achieve the fastest GDP per capita growth among the G7 countries.
“The new government has no illusions about the scale of the challenge we face after more than a decade of low economic growth and a £22 billion black hole in the public finances,” Reeves said in a statement on Thursday.
On October 30, Labour will present its first budget. Analysts expect the announcement to provide more clarity on the government’s fiscal strategy and its plans for changes to taxes and public spending.
For this reason, it is “unlikely that we will see a significant acceleration in GDP in the short term,” said Richard Carter of Quilter Cheviot.
“For now, the economy is expected to continue on its relatively moderate growth path, supported by wage growth that continues to be above inflation and the recent easing of monetary policy,” he added.
