The UK economy expanded by 0.6% in the second quarter of 2024, according to data released by the Office for National Statistics (ONS) on Thursday. This growth rate, which aligns with economist expectations, indicates a continuation of the country’s steady but cautious recovery from a recent shallow recession.
Economic growth slows in June
June saw no growth in the UK economy, with economic activity remaining flat. This stagnation was driven by a 0.1% contraction in the dominant services sector, which typically accounts for a significant portion of economic activity.
The construction and production sectors provided some relief, with output increases of 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 UK economy grew by 0.9% in the second quarter, slightly surpassing the forecasted 0.8%. This growth comes in the context of various economic pressures, including rising inflation, which hit 2.2% in July.
While this figure was below the anticipated 2.3%, it marked an increase from the Bank of England’s target rate of 2%, where it had remained for the previous two months. The recent rise in inflation has been a significant factor influencing monetary policy, with the central bank opting to cut interest rates by 25 basis points in early August.
At the same time, wage growth excluding bonuses cooled to 5.4%, its lowest level in two years, though it remained high relative to inflation. This dynamic has had a mixed impact on the economy, supporting consumer spending in some areas while limiting growth potential in others.
Outlook for the second half
Looking ahead, experts suggest that the pace of economic growth may not be sustained in the second half of the year. Factors such as weaker wage growth, high interest rates, and persistent supply chain challenges are expected to weigh on economic activity.
The International Monetary Fund, Goldman Sachs, and the Bank of England have all revised their growth forecasts for the UK upward in recent months, with the IMF now predicting 0.7% growth for the year, up from an earlier estimate of 0.5%.
The recent inflation trends and planned economic reforms under the new Labour government, which assumed office in July, have contributed to these more optimistic forecasts. However, analysts caution that any significant acceleration in growth is unlikely in the short term.
Labour has set ambitious goals for the economy, with Prime Minister Keir Starmer and Finance Minister Rachel Reeves aiming for the UK to achieve the fastest per capita GDP growth among G7 nations. The government’s first budget, due on 30 October, is expected to provide further details on their fiscal strategy, including potential changes to taxation and public spending.
In the immediate future, the economy is anticipated to continue its moderate growth trajectory, supported by wage growth outpacing inflation and the recent easing of monetary policy. However, significant challenges remain, and the outlook for the remainder of the year remains cautious.
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