The UK economy grew by 0.6% in the second quarter of 2024, according to data released by the Office for National Statistics (ONS) on Thursday. The growth rate, in line with economists’ expectations, points to the country’s steady but cautious recovery from its recent shallow recession.
Economic growth slows in June
The UK economy saw no growth in June, with economic activity remaining flat. The slump was driven by a 0.1% contraction in the dominant services sector, which typically accounts for a large part of economic activity.
The construction and manufacturing sectors provided some relief, with output rising 0.5% and 0.8%, respectively. These gains helped offset the decline in services, contributing to the overall stability of the economy during the month.
Annual growth reaches 0.9%
On an annual basis, the British economy grew by 0.9% in the second quarter, exceeding expectations of 0.8%. This growth comes in the context of several economic pressures, including rising inflation, which reached 2.2% in July.
Although this was below expectations of 2.3%, it was above the Bank of England’s target of 2%, where it had remained for the previous two months. The recent rise in inflation has been a significant factor in influencing monetary policy, with the central bank opting to cut interest rates by 25 basis points in early August.
Meanwhile, wage growth excluding bonuses slowed to 5.4%, its lowest in two years, though it remained high relative to inflation. This dynamic had a mixed impact on the economy, supporting consumer spending in some areas while limiting growth potential in others.
Second semester expectations
Looking ahead, experts suggest that the pace of economic growth may not continue into the second half of the year. Factors such as weak wage growth, rising interest rates and ongoing supply chain challenges are expected to weigh on economic activity.
The International Monetary Fund, Goldman Sachs and the Bank of England have revised their UK growth forecasts upward in recent months, with the IMF now expecting growth of 0.7% this year, up from its previous estimate of 0.5%.
Recent inflation trends and planned economic reforms under the new Labour government, which took power in July, have helped to underpin this more optimistic outlook. However, analysts warn that any significant acceleration in growth is unlikely in the short term.
Labour has set ambitious targets for the economy, with Prime Minister Keir Starmer and Chancellor Rachel Reeves aiming for the UK to achieve the fastest GDP per head growth of any G7 nation. The government’s first budget, due on 30 October, is expected to provide more detail on its fiscal strategy, including potential changes to taxation and public spending.
Looking ahead, the economy is expected to continue its moderate growth path, supported by wage growth that exceeds inflation and the recent easing of monetary policy. However, significant challenges remain, and the outlook for the rest of the year remains cautious.
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