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Spring growth: UK economy picks up unexpectedly

Spring growth: UK economy picks up unexpectedly

Status: 08/11/2023 10:06 am

Experts expected stagnation in the UK in the spring, but GDP picked up instead. However, despite the recent setback, economists expect tougher times ahead for the British economy.

The British economy grew unexpectedly in the spring. According to the Office for National Statistics ONS, gross domestic product (GDP) increased by 0.2 percent from April to June compared with the previous quarter. Analysts had expected economic output to stagnate in the second quarter. Year-on-year, the UK economy grew by 0.4 per cent.

This allowed the British economy to build on the modest growth at the start of the year. In the first three months of the year, economic output increased by 0.1 percent compared to the previous quarter.

In June alone, GDP increased by 0.5 percent compared to the previous month, thus more than double what was expected. Analysts on average had expected growth of 0.2 percent, after economic output contracted 0.1 percent in May.

Strength Industrial production

There was also unexpectedly strong growth in industrial production. In June, industrial firms increased their output by 1.8 percent month-on-month, the Bureau of Statistics said. Analysts had expected an average growth of 0.2 percent after output fell 0.6 percent in May. The Bureau of Statistics reported that firms cited an additional national holiday in May for June’s output increase compared to May. Corporate investments also increased by 3.4 percent compared to the previous quarter.

“The measures we’ve taken to fight inflation are starting to take effect, which means we’re laying a solid foundation for the economy to grow,” Treasury Secretary Jeremy Hunt said.

Inflation remains high

However, the country is the only major advanced economy that has yet to recover by late 2019, official data showed on Friday. In the second quarter, the British economy is now 0.2 percent smaller than it was at the end of 2019. In Germany, economic output is already 0.2 percent above 2019 levels, in France 1.7 percent, in Italy 2.2 percent and in the United States. Even 6.2 percent.

Great Britain still suffers from relatively high inflation. For example, inflation in the UK fell in July. However, at 7.9 percent, the annual inflation rate remained above levels in the euro zone and the United States. Despite the measures taken by the Bank of England, inflation is still far from the two percent target.

Will interest rates continue to rise?

Earlier in the month, the Bank of England raised its key interest rate again by a quarter of a percentage point to 5.25 percent. This will be the 14th rate hike since the end of 2021. At that time, the interest rate was above zero. The key interest rate is currently at its highest level since the 2008 financial crisis. The unexpected development could lay the groundwork for further rate hikes by the central bank. The central bank itself expected growth of just 0.1 percent in the second quarter.

Most economists expect the UK economy to face tough times despite the recent downturn. “With the burden of higher interest rates still to come, we maintain our less consensus forecast that the UK will head into a mild recession later this year,” said Ruth Gregory, economist at consultancy Capital Economics.