Second quarter data show Britain’s economy enjoying strong growth, further encouraging expectations that the Bank of England (BOE) will cut interest rates again in September. The data caused a marginal increase in the value of Sterling. In the first quarter, gross domestic product showed a 0.7% increase, (the fastest in two years). Figures from the National Statistics today show a 0.6% growth in the second quarter. This means that the UK has the fastest growth rate of all G7 advanced economies, (including the US). Output per head is still 0.8% lower than before the pandemic and business investment was 1.1% lower than last year. This is a long-term problem in Britain, which shot up in 2016 following the vote to leave the European Union.

Looking ahead, predictions are not so optimistic. In June monthly output slowed from 0.4% in May to zero, attributed to factors such as the downturn in retail sales and pre-election uncertainty. The Doctor’s strike caused a 1.5% drop in healthcare activity. BOE raised its forecast for growth in 2024 to 1.25% (from 5%) on an expectation of 0.7% growth in the June Quarter. Yet the forecast also anticipated a drop in the rest of the year, of 0.4% in the 3^rd Quarter and 0.2% in quarter 4.

According to Thomas Pugh, from RSM UK,  the UK needs ‘rising incomes and confidence feeding through into actual spending and investment to drive growth over the next year.’ Suren Thiru, from the Institute of Chartered Accountants in England and Wales, concluded that the rate of growth was unstainable due to interest rates being close to a 16-year high, wage growth, and a long-term productivity problem.

The UK has faced one of the slowest post Covid economic recoveries, (second only to Germany), expanding only 2.3% between 2019 and 2024. A target of 2.5% per annum was proposed by now Prime Minister Keir Starmer as part of his election campaign, but Britain has not achieved this rate regularly since before the 2008 financial crisis. Yet the data from the first 2 quarters undermines the claims of inheriting ‘the worst fiscal inheritance since the Second World War.’

Responding to today’s figures, Chancellor Rachel Reeves reiterated the need for tough decisions in her forthcoming budget. However, the data does pose a challenge to the new Government’s economic stance. Claiming to have inherited a £21 billion ‘black hole’ in public spending, the Chancellor has been warning about the need for tax raises to come. Yet some are asking whether she can justify these rises or cuts to spending with an economy already on the rebound from last year’s recession.

(Sources: reuters.com, bbc.co.uk)