UK Economy Surpasses Predictions, Achieving 0.2% Growth in April-June; June Alone Witnesses Impressive 0.5% Expansion.
UK economy expands more rapidly than anticipated
The UK’s Gross Domestic Product (GDP) saw a 0.2% increase from April to June, marking an improvement from the previous three months’ 0.1% growth and representing the most favorable quarterly performance in over a year. The Office for National Statistics (ONS) disclosed this data.
Economists were taken by surprise as their predictions, gathered in a pre-report poll, had anticipated zero growth in output for the quarter. Notably, this upturn was influenced by a remarkably robust showing in June, witnessing a substantial 0.5% rise. In May, GDP had contracted by 0.1% due to an additional bank holiday celebrating King Charles’ coronation, following a 0.2% growth in April.
Despite these positive developments, the UK economy remains 0.2% smaller than its size in the final quarter of 2019, prior to the advent of the COVID-19 pandemic that precipitated the most severe recession on record.
The Resolution Foundation thinktank highlighted that the past 18 months, marked by a cost of living crisis, represent the weakest period outside of a recession in 65 years. Despite the UK economy averting a technical recession characterized by two successive quarters of GDP decline, the challenges persist.
Darren Morgan, Director of Economic Statistics at the ONS, commented:
“The economy rebounded from the impact of May’s additional bank holiday to register robust growth in June. Manufacturing experienced a notably strong month, with significant growth in both the automobile sector and the often-volatile pharmaceutical industry.
“Services also exhibited vigor, with publishing, car sales, and legal services performing well. However, this was somewhat offset by declines in the health sector, impacted by ongoing strike action. Construction also displayed robust expansion, alongside the hospitality sector, including pubs and restaurants, which benefited from the favorable weather conditions.
Concerns about the possibility of the UK economy sliding into a recession
June witnessed notable acceleration in growth, as GDP surged by 0.5%, attributed to heightened manufacturing and construction activities. Additionally, more working days in June compared to May, when the country observed a public holiday for the coronation, played a role in this boost.
Chancellor Rishi Sunak expressed satisfaction with the GDP report, characterizing it as positive news. He further remarked that his prioritized objective of economic growth has been making headway, acknowledging the ongoing efforts while acknowledging room for further progress.
However, both the CEBR and Capital Economics have sounded caution, warning of potential recession in forthcoming quarters due to the impact of elevated interest rates on growth.
Senior market analyst at OANDA, Craig Erlam, stated that better weather in June contributed to the UK economy displaying increased resilience towards the close of the second quarter. He noted that despite the substantial drag from the cost-of-living crisis, consumer activity has demonstrated noteworthy durability, a factor that has prevented the economy from slipping into recession.
In June, the economy expanded by 0.5% compared to the previous month, surpassing expectations and contributing to a 0.2% growth over the quarter. While acknowledging this growth, it’s recognized that challenges and pressures remain significant. Nonetheless, the potential for inflation to fall below average earnings growth could maintain the spending resilience.
Concerns among city investors regarding the stronger growth potentially leading the Bank of England to persist with interest rate hikes impacted share prices in London. Consequently, the FTSE 100 index concluded down by 94 points or 1.25%, reflecting market sentiment.
