The British 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 reading was in line with expectations of economists polled by Reuters, and comes after growth of 0.7% in the first quarter.
Economic growth was steady in June, in line with a Reuters poll, with activity in the UK’s dominant services sector falling 0.1%. Construction and production output rose 0.5% and 0.8% respectively in the month.
The UK economy has grown slightly but almost steadily every month so far this year, as the UK emerges from a shallow recession. Gross domestic product was flat in April, when wet weather slowed retail sales and construction output.
On an annual basis, the economy grew by 0.9% in the second quarter, compared to expectations of 0.8% growth.
“These figures confirm that the UK’s recovery from recession gained momentum in the second quarter, despite strikes and wet weather causing activity to flatten out in June,” Suren Thiru, director of economics at the Institute of Chartered Accountants in England and Wales, said in a note.
“The UK’s strong performance in Q2 was due more to the temporary momentum generated by recent large declines in inflation and a boost in consumer spending from events such as Euro 2024 than to a significant improvement in the UK’s underlying growth trajectory,” Thiru added.
Thero added that the pace of growth is unlikely to continue in the second half of the year, given weak wage growth, rising interest rates and supply challenges.
UK inflation rose to 2.2% in July, data from the Office for National Statistics showed on Wednesday, slightly below expectations of 2.3%. The headline figure had been at the Bank of England’s 2% target for the previous two months, helping to prompt the central bank’s decision to cut interest rates by 25 basis points at the start of August.
Analysts described the July figures as supportive of continued monetary easing through the rest of the year, despite stubborn inflation in the services sector.
Over the April-June period, UK wage growth excluding bonuses slowed to its lowest level in two years, but remained relatively high at 5.4%.
Richard Carter, head of fixed rates research at Quilter Cheviot, said lower interest rates would “help stimulate further economic growth by making borrowing more expensive for households and businesses” in the coming months – but he noted it would take some time before the impact was felt.
The pound rose slightly following Thursday's GDP data, rising 0.1% against the US dollar and 0.2% against the euro at 7:35 a.m. in London.
Institutions including the International Monetary Fund, investment bank Goldman Sachs and the Bank of England have raised their forecasts for UK economic growth in recent months. The IMF now expects growth of 0.7% this year, up from 0.5% previously.
Factors cited include low inflation and reforms to planning and business rules planned by the new Labour government, which took power in July. Prime Minister Keir Starmer and Chancellor Rachel Reeves have repeatedly said that boosting economic growth will be the basis of policymaking, and have set a target for the UK to achieve the fastest GDP per capita growth among G7 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 £22 billion black hole in the public finances,” Reeves said in a statement on Thursday.
Labour is due to deliver its first budget on October 30, and analysts say the announcement will give more clarity on the government's fiscal strategy and plans to change taxes and public spending.
Because of this, “we are unlikely to see a significant acceleration in GDP in the near term,” says Richard Carter of Quilter Cheviot.
“For now, the economy is expected to continue on its relatively moderate growth path, supported by wage growth that remains above inflation and recent monetary policy easing,” he added.
