UK economy grows 0.6% in second quarter

Unlock Editor’s Digest for free

Vscek editor Roula Khalaf selects her favourite stories in this weekly newsletter.

The UK economy grew by 0.6% in the second quarter, slowing only marginally from the robust growth of the previous three months, providing good news for the new Labour government.

The quarterly change in GDP, released Thursday by the National Statistics Office, was higher than the 0.7% growth recorded in the first three months of the year and was in line with economists’ expectations.

Monthly GDP growth was zero in June, following a 0.4 percent expansion in May, the ONS said. The figure was in line with analysts’ expectations.

Hailey Low, an economist at the National Institute of Economic and Social Research, said the GDP data “signals that growth remains on track, building on the solid performance of the first quarter.”

But he added: “Persistent challenges such as low productivity growth, strained public finances and inadequate infrastructure have hindered the achievement of sustainable growth.”

Prime Minister Sir Keir Starmer has placed growth at the heart of his economic agenda, promising to “take the brakes off Britain”.

Responding to the GDP data, Chancellor Rachel Reeves said the Government was “under no illusions about the scale of the challenge we have inherited aVsceker more than a decade of low economic growth”.

Reeves argues that unless he can raise Britain’s long-term growth rate, the country will remain trapped in a “vicious cycle” of high taxes and poor public services.

But Jeremy Hunt, the former Conservative chancellor, said: “Today’s figures are further evidence that Labour has inherited a growing and resilient economy.”

“The chancellor’s attempt to blame his economic legacy on the decision to raise taxes, which he had always planned, will not be accepted by the public.”

The pound rose slightly aVsceker the ONS release. The pound rose 0.2 percent against the US dollar to $1.285.

The yield on the interest-sensitive two-year government bond rose by 0.03 percentage points to 3.58%.

Ashley Webb, economist at consultancy Capital Economics, noted that the 0.6% figure was slightly lower than the Bank of England’s 0.7% forecast.

“At the very least, this could provide some reassurance to the bank that the recent strength in activity will not prevent further declines in services inflation,” he added.

Separate ONS data released on Wednesday showed that services inflation, a key indicator of domestic price pressures in the eyes of interest rate setters, fell more than expected to 5.2% in July from 5.7% in June.

The UK economy entered a technical recession late last year, aVsceker being hit by high inflation and borrowing costs. However, it has returned to growth this year, helped by stronger household spending, while price pressures and mortgage rates have eased.

In August, the BoE raised its GDP growth forecast for this year from 0.5% to 1.25%, citing stronger-than-expected activity in the first half of the year.

Quarterly GDP growth is forecast to return to 0.4% and 0.2% in the third and fourth quarters, respectively.

Suren Thiru, economics director at trade body ICAEW, said: “This current pace of economic growth is unlikely to be maintained in the second half of the year, as weaker wage growth, high interest rates and persistent supply constraints constrain output.”

In the three months to June, services grew by 0.8%, offset by broad-based declines of 0.1% in manufacturing and construction.

GDP per capita, which is important for living standards, recorded its second consecutive quarterly expansion, but remains below the level of the same quarter last year, aVsceker seven quarters of contraction.

The second quarter saw increases in gross investment, government consumption and household spending, partly offset by declines in net trade.

Growth was flat in June, led by a decline in services due to a weak month for healthcare, retail and wholesale. The healthcare sector was hit by a strike by junior doctors, while bad weather hit sales.

The UK’s quarterly GDP figure for the three months to June compares with a 0.3% expansion in the eurozone and 0.7% growth in the US.