UK economy expands 0.6% in second quarter

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The UK economy grew 0.6 per cent in the second quarter, in only a marginal slowdown from the robust growth of the previous three months, providing some good news for the new Labour government.

The GDP figure from the Office for National Statistics on Thursday compared with 0.7 per cent growth 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 per cent expansion in May, the ONS said. The figure was in line with analysts’ expectations.

Hailey Low, economist at the National Institute of Economic and Social Research, said the GDP figures “signal that growth remains on course, building on Q1’s strong performance”.

But she added: “Persistent challenges such as low productivity growth, strained public finances and inadequate infrastructures have acted as barriers to achieving sustained growth.”

Prime Minister Sir Keir Starmer has placed growth at the centre 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 illusion as to the scale of the challenge we have inherited after more than a decade of low economic growth”.

Reeves argues that unless she can boost Britain’s long-term growth rate, the country will be trapped in a “doom loop” of high taxes and poor public services.

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

“The chancellor’s attempt to blame her economic inheritance on her decision to raise taxes — something she had always planned — will not wash with the public,” he added.

Sterling edged higher following the ONS release. The pound climbed 0.2 per cent against the US dollar to $1.285. 

The yield on the interest rate-sensitive two-year gilt rose 0.03 percentage points to 3.58 per cent.

Ashley Webb, economist at consultancy Capital Economics, noted that the 0.6 per cent figure was marginally lower than the 0.7 per cent forecast by the Bank of England.

“At the margin, this may give the bank a bit of reassurance that the recent strength of activity won’t prevent further falls in services inflation,” he added.

Separate ONS data published on Wednesday showed services inflation, a crucial gauge of domestic price pressures in the eyes of interest rate-setters, fell more than expected to 5.2 per cent in July from 5.7 per cent in June.

The UK economy entered a technical recession at the end of last year after being hit by high inflation and borrowing costs. However, it returned to growth this year, helped by stronger household spending as price pressures and mortgage rates declined.

In August, the BoE upgraded its GDP growth forecast for this year to 1.25 per cent from just 0.5 per cent owing to stronger-than-expected activity in the first half of the year.

It expects quarterly GDP growth to fall back to 0.4 per cent and 0.2 per cent in the third and fourth quarters, respectively.

Suren Thiru, economics director at the ICAEW professional body, 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 limits output.”

Services grew 0.8 per cent in the three months to June, with widespread offsetting falls of 0.1 per cent in the production and construction sectors.

GDP per head, which matters for living standards, posted the second consecutive quarterly expansion, but it remains below the level of the same quarter last year following seven quarters of contraction.

In the second quarter, there were increases in gross capital formation, government consumption and household spending, partially offset by falls in net trade.

In June growth was flat, driven by a fall in services owing to a weak month for health, retailing and wholesaling. The health sector was affected by the junior doctors’ strike, while wet weather hit sales.

The UK’s GDP quarter-on-quarter figure for the three months to June compares with a 0.3 per cent expansion in the Eurozone and 0.7 per cent growth in the US.