UK Economy Grows 0.6% in Q2, Beating Annual Forecasts Despite Sector Shifts
U.K. Economy Grows 0.6% in Second Quarter, Meeting Expectations
The United Kingdom’s economy expanded by 0.6% in the second quarter of 2023, according to data released by the Office for National Statistics (ONS). This growth aligns with economists’ forecasts and follows a 0.7% increase in the first quarter.
While the overall trend shows steady growth, June saw flat economic performance. The services sector experienced a slight 0.1% decline, offset by increases in construction (0.5%) and production (0.8%) output.
On an annual basis, the economy grew by 0.9%, surpassing the predicted 0.8%. This performance indicates the U.K. has successfully exited a shallow recession, with slight but consistent growth observed in most months this year.
Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, commented on the figures: “The U.K.’s recovery gained momentum in the second quarter, despite challenges such as strike action and inclement weather.” Thiru attributed the strong performance to temporary factors, including falling inflation and increased consumer spending around events like Euro 2024.
However, Thiru cautioned against overoptimism, stating, “The pace of growth is unlikely to continue into the second half of the year due to weaker wage growth, high interest rates, and ongoing supply challenges.”
In related economic news, U.K. inflation rose to 2.2% in July, slightly below the 2.3% forecast. This follows two months of the Bank of England maintaining the headline inflation figure at its 2% target rate, which led to a 25 basis point interest rate cut in early August.
The labour market showed signs of cooling, with wage growth excluding bonuses reaching a two-year low of 5.4% over the April-June period, though still remaining relatively high.
Richard Carter, head of fixed interest research at Quilter Cheviot, suggested that lower interest rates should stimulate further economic growth by making borrowing more affordable, but noted that the impact would take time to materialize.
Market reaction to the GDP release was positive, with the British pound rising slightly against both the U.S. dollar and the euro.
Looking ahead, the new Labour government, led by Prime Minister Keir Starmer and Finance Minister Rachel Reeves, has set ambitious targets for economic growth. Reeves acknowledged the challenges ahead, citing over a decade of low economic growth and a £22 billion public finance deficit.
The government’s first budget, scheduled for October 30, is expected to provide more details on fiscal strategy, taxation, and public spending plans. While a significant acceleration in GDP growth is not anticipated in the short term, analysts expect the U.K. economy to continue on a moderate growth trajectory, supported by wage growth and recent monetary policy easing.
