Anika Begay
The UK economy grew by 0.6% in the second quarter of the year, the Office for National Statistics said on Thursday, continuing the country’s cautious recovery from recession.
The figure was in line with expectations of economists polled by Reuters and follows a 0.7% expansion in the first quarter.
Economic growth remained steady in June, in line with a Reuters poll, as activity in the U.K.’s dominant services sector fell 0.1 percent. Construction and manufacturing output rose 0.5 percent and 0.8 percent, respectively, in the month.
The British economy has seen modest but steady growth in most months so far this year as the UK emerges from a shallow recession. GDP was also flat in April, when wet weather stifled retail sales and construction output.
On an annual basis, the economy grew by 0.9% in the second quarter, compared with a forecast of 0.8%.
“These figures confirm that the UK’s recovery from recession has picked up momentum in the second quarter, despite strikes and bad weather causing activity to stagnate in June,” Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said in a note.
“The UK’s strong second quarter is more due to temporary momentum from recent large falls in inflation and a boost to consumer spending from events such as Euro 2024 than to any significant improvement in the UK’s underlying growth trajectory,” Thiru continued.
Thiru added that the pace of growth is unlikely to continue in the second half of the year, due to weaker wage growth, high interest rates and supply bottlenecks.
UK inflation rose to 2.2% in July, according to data released by the ONS on Wednesday, coming in slightly below the consensus forecast of 2.3%. The headline reading had been at the Bank of England’s 2% target rate for the previous two months, helping to spur the central bank’s decision to cut interest rates by 25 basis points in early August.
The July data was described by analysts as a positive sign of continued monetary easing for the rest of the year, despite persistent inflation in the services sector.
In the April-June period, UK wage growth excluding bonuses cooled to a two-year low, but remained relatively high at 5.4%.
Richard Carter, head of fixed interest rate research at Quilter Cheviot, said lower interest rates should “help stimulate greater economic growth by making borrowing more affordable for households and businesses” in the coming months, but noted that it would take time for the impact to be felt.
The British pound edged higher after Thursday’s GDP report, rising 0.1% against the U.S. dollar and 0.2% against the euro by 7.35 a.m. in London.
Institutions including the International Monetary Fund, investment bank Goldman Sachs and the Bank of England have all raised their growth forecasts for the UK economy in recent months. The IMF now forecasts growth of 0.7% this year, up from 0.5% previously.
Factors cited include falling inflation and reforms to planning and corporate governance planned by the new Labour government, which took office in July. Prime Minister Keir Starmer and Finance Minister Rachel Reeves have repeatedly said that boosting economic growth will be the cornerstone of their policy, setting a target for the UK to achieve the fastest per capita GDP growth among the Group of Seven nations.
“The new government is under no illusions about the scale of the challenge we have inherited after more than a decade of low economic growth and a £22bn black hole in the public finances,” Reeves said in a statement on Thursday.
Labour is due to present its first budget on October 30, with analysts saying the announcement will provide greater clarity on the government’s fiscal strategy and plans for changes to taxation and spending.
For this reason, “we are unlikely to see a marked acceleration in GDP in the near term,” said Richard Carter of Quilter Cheviot.
“For now, the economy is expected to continue its relatively moderate growth path, supported by wage growth remaining above inflation and the recent easing of monetary policy,” he added.
