The British economy shows strength in the second quarter, putting further interest rate hikes at stake | Economy

The British economy posted unexpected growth in the second quarter, setting the stage for further interest rate hikes by the Bank of England, but it remains the only major developed economy to recover to pre-Covid levels in late 2019.

Official data released on Friday showed that the economy grew by 0.2% in the second quarter, against expectations of stability in a Reuters poll of economists. The performance was favored by monthly growth of 0.5% in June, above all Reuters survey expectations which indicated a 0.2% increase.

The strong performance boosted bets that the central bank will continue to raise interest rates, as it confirmed this month that the resilience of the economy is one of the factors that will influence its decision.

The central bank itself had forecast 0.1% growth in the second quarter.

“This spells trouble for the Bank of England – they may be looking to stop raising interest rates soon, but this data will make that more difficult,” said Neil Pearl, PM Mitton Fund Manager.

The Office for National Statistics said businesses cited an additional national holiday in May as a factor in the increase in output in June compared to the previous month.

Manufacturing had its best quarter since the start of 2019, barring an initial rebound from the first Covid-19 shutdown in 2020, with production increasing 1.6% in the quarter.

Business investment also increased, growing 3.4% in the first quarter.

“The measures we are taking to fight inflation are starting to bear fruit, which means we are laying the strong foundations needed for the economy to grow,” said Finance Minister Jeremy Hunt.

While the UK has so far avoided a recession, unlike the eurozone, the figures underscore its relatively poor performance since the start of the Covid-19 pandemic.

The UK economy is now down 0.2% from its level at the end of 2019, compared with 0.2% higher for Germany, 1.7% for France, 2.2% for Italy and 6.2% for the United States.

Most economists believe that hard times are coming, despite the economy’s recent resilience.

“With much of the brunt of the high interest rate still to come, we hold to our less than unanimous expectation that the UK is heading towards a mild recession later this year,” said economist Ruth Gregory of Capital Economics.