UK economic expansion persists in second quarter with modest growth, despite challenges

UNITED KINGDOM — The British economy expanded by 0.6% in the second quarter of 2024, the Office for National Statistics reported on Thursday. The growth was in line with previous forecasts by Reuters analysts and marks the continuation of the nation’s gradual recovery from the recent economic crisis.

Despite a strong start to the quarter, economic activity in June showed little change, as expected. The services sector, which plays a crucial role in the UK economy, saw a slight decline of 0.1%. However, this was offset by positive developments in construction and manufacturing, which grew by 0.5% and 0.8% respectively over the same period.

The UK has seen steady, if modest, growth over the year as it recovers from a mild recession. In particular, economic performance was stable in April, despite adverse weather conditions impacting the retail and construction sectors.

Year-on-year growth for the quarter came in at 0.9%, slightly ahead of expectations of 0.8%. “These statistics point to a strengthening recovery, despite disruptions such as industrial action and adverse weather conditions in June,” said Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales.

Thiru stressed that the quarter’s solid performance was partly supported by a temporary decline in inflation and a rise in consumer spending, driven by events including Euro 2024. However, he warned that this growth momentum may not last in the second half of the year, hampered by slower wage increases, high interest rates and ongoing supply constraints.

Inflation data released by the ONS showed a slight increase to 2.2% in July, just below the 2.3% forecast. This follows a period in which inflation has been closely aligned with the Bank of England’s 2% target, influencing the recent decision to cut interest rates by 25 basis points in early August.

The reaction to the GDP announcement was positive: in London, at midday, the British pound began to strengthen against major currencies.

Looking ahead, the economic outlook appears cautiously optimistic. Major financial institutions such as the IMF, Goldman Sachs and the Bank of England have all raised their growth forecasts for the UK. These revisions reflect the impact of lower inflation and policy reforms planned under the new Labour government led by Prime Minister Keir Starmer and Finance Minister Rachel Reeves, who are prioritising economic growth.

Despite these positive indicators, Richard Carter of Quilter Cheviot reminds us that a significant acceleration in GDP is unlikely in the near term. He forecasts continued moderate growth, supported by above-inflation wage increases and recent monetary policy adjustments.

As the UK navigates these economic waters, the upcoming budget announcement on 30 October is eagerly awaited for further insights into the government’s fiscal strategies and economic projections.