The UK economy showed signs of continued recovery from recession at the end of last year, with growth extending over the latest quarter, according to official data released by the Office for National Statistics (ONS). Gross domestic product (GDP) increased by 0.6% between April and June, in line with economist predictions and providing a welcome boost for new Chancellor Rachel Reeves.
The ONS reported that there was no economic growth recorded for the month of June, as weakness in services was offset by improvements in the manufacturing sector. This followed a pattern of no growth in April due to wet weather impacts, and 0.4% growth in May as the economy began to recover. The second-quarter performance came after 0.7% growth in the first quarter, following a shallow recession over the second half of 2023.
Liz McKeown, ONS director of economic statistics, highlighted that growth across the three months was led by the service sector, with scientific research, the IT industry, and legal services performing well. However, in June, growth was flat as services fell, primarily due to a weak month for health, retailing, and wholesaling, offset by growth in manufacturing.
The service industry contracted by 0.1% for the month, with high street and wholesale retailers recording a 1% drop in output. Separate ONS figures released last month showed a 1.2% decrease in the quantity of products bought by shoppers in June, as retailers cited uncertainty ahead of the general election as a contributing factor.
Anecdotal evidence suggested that strike action in various industries had an impact on economic output in June. The human health sector saw a dip linked to junior doctors‘ strikes, while the TV and film production industry experienced lower output due to ongoing Screen Actors Guild strikes in America affecting UK production schedules.
Chancellor Rachel Reeves acknowledged the challenges inherited by the new Government, emphasizing economic growth as a national mission. The Government aims to address a £22 billion black hole in public finances and rebuild the economy to benefit all regions of the country.
Despite the positive growth figures, some economists cautioned that a slowdown in growth is likely in the coming months, posing a challenge for the Government’s revenue projections. Sanjay Raja, UK chief economist at Deutsche Bank, predicted a slowdown in the second half of the year, with weaker carry-over effects into the third quarter.
However, Peter Arnold, EY UK chief economist, expressed a slightly more optimistic view, anticipating rebounds in health and retail output in July to kickstart the third quarter on a positive note. Nomura chief European economist George Buckley believed that the Bank of England would be satisfied with the economic growth seen so far in the year, shifting focus towards activity levels in light of contained inflation.
Overall, the UK economy’s growth trajectory in the first half of 2024 has shown signs of recovery and resilience, with challenges and opportunities ahead as the Government navigates the path to sustainable economic growth and fiscal stability.