The UK economy grew by 0.6% in the second quarter, in line with forecasts, and continuing its recovery from last year’s recession.
The increase in GDP between April and June follows identical growth of 0.6% in the first quarter of this year. In the final three months of 2023, the economy shrunk by 0.3%, pushing the UK into a recession. In terms of monthly figures, GDP flatlined in June with no growth, following a 0.4% expansion in May.
“The month-on-month GDP figures were in line with economists’ expectations - showing no overall growth,” comments Nicholas Hyett, investment manager at Wealth Club.
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“The weakness in the all-important services sector reflects a slowdown in the retail sector as well as strikes by junior doctors, though the professional services sector remains resilient and is now in its fifth consecutive month of growth.”
He adds: “However, the crucial number from a political point of view is the quarterly growth figure, and at 0.6% it's pretty healthy. With the potential for interest rate cuts to stimulate activity in the second half of the year, the recession of late 2023 seems a long time ago."
Will the strong economic growth continue?
The economy performed well overall in the second quarter, despite strike action and wet weather causing activity to flatline in June.
Growth was led by the services sector, especially the IT industry, legal services and scientific research. In contrast, manufacturing and construction both saw output fall between April and June. The zero growth recorded in June is an estimate and could be revised in future.
Alice Haine, personal finance analyst at Bestinvest, says the flat growth feels like an “anomaly, particularly as it comes in the same month that Taylor Swift’s concert tour stormed the UK”.
The big question is whether the new Labour government will continue to enjoy strong economic growth as the year progresses. Experts think that is unlikely.
Suren Thiru, economics director at ICAEW, the Institute of Chartered Accountants in England and Wales, notes: “The UK’s strong second quarter owes more to temporary momentum from the large recent falls in inflation and a boost to consumer spending from events like Euro 2024 than from a meaningful improvement in the UK’s underlying growth trajectory.
“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 limit output.”
The consultancy Capital Economics said the second-quarter GDP was slightly weaker than it expected and has now revised down its forecast for GDP growth in 2024 as a whole from 1.3% to 1.2%.
Will interest rates be cut again?
The Bank of England cut interest rates from 5.25% to 5% at the start of August, the first reduction since 2020.
Markets are currently pricing in around a 45% chance of another 25 basis point cut next month.
Haine at Bestinvest comments: “With so many variables to consider, the Bank may stick to a cautious path, which could see households having to wait until November, rather than September, for the next rate cut.
“While the Bank has indicated it is prepared to cut borrowing costs again, it has also made it clear it will evaluate domestic price pressures carefully before it moves ahead with another rate reduction.”
Capital Economics also thinks that interest rates will be held at 5% at the next policy meeting in September.
However, Sam North, market analyst at investment platform eToro, says the flat June GDP figure could raise concerns, and “provide the Bank of England with further justification to consider cutting interest rates next month”.
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