Economy Continues Recovery From Recession With 0.6 Percent Growth

File photo of people crossing the Millennium Bridge in London, England, on Aug. 08, 2024. (Yui Mok/PA)

The economy has maintained its recovery from the mild recession in the latter half of 2023, with growth continuing for a second consecutive quarter, according to official figures.

Office for National Statistics (ONS) data published on Thursday showed that gross domestic product (GDP) had increased by 0.6 percent between April and June, coming after a 0.7 percent growth in the first quarter of this year.

ONS Director of Economic Statistics Liz McKeown described the growth as strong, “following the weakness we saw in the second half of last year.”

McKeown said: “Growth across the three months was led by the service sector, where scientific research, the IT industry and legal services all did well.

“In June growth was flat with services falling, due to a weak month for health, retailing and wholesaling, offset by widespread growth in manufacturing.”

Economists Split

The performance is in line with predictions, but economists are split on whether the growth will continue.

Sanjay Raja, UK chief economist at Deutsche Bank, said that while this should lift the overall size of the economy, “don’t expect the strong growth in H1 [the first half of the year] of 2024 to last. We should see some slowdown.”

“Indeed, June GDP flatlined, with the services sector shrinking by 0.1 percent. Carry-over effects into the third quarter will be weaker,” Raja predicted.

EY UK Chief Economist Peter Arnold was slightly more optimistic, saying that “the prospect of rebounds in health and retail output in July means that Q3 should get off to a reasonable start.”

“Beyond that, EY expects the economy to continue growing at a decent pace, though it will struggle to sustain the above-trend rates seen in H1 2024,” Arnold said.

Nomura’s chief European economist, George Buckley, said he thinks the Bank of England (BoE) will be “satisfied” with the economic growth so far, saying he believes central banks are “now looking a lot more closely at GDP figures relative to inflation.”

“It’s not quite beaten yet, but the inflation genie has been put back in the bottle and I think now the focus is switching back towards the activity side, so these GDP numbers will be important,” Buckley said.

Economic Challenges

GDP is used to describe the size of a country’s economy by measuring the economic activity across governments, industry, and households. If households are spending more and companies are creating more work, this is an indication of economic growth.

This second quarter of solid growth should be a positive for the new Labour government, which has made growing the economy a key objective in their plans to draw in higher tax revenue which can then be put into public spending.

However, Chancellor of the Exchequer Rachel Reeves stressed the government “is under no illusion as to the scale of the challenge we have inherited after more than a decade of low economic growth and a £22 billion black hole in the public finances.”

“That is why we have made economic growth our national mission and we are taking the tough decisions now to fix the foundations, so we can rebuild Britain and make every part of the country better off,” Reeves added.

Inflation

The performance comes after the ONS published the Consumer Price Index figures on Wednesday, showing that inflation had risen to 2.2 percent in July, above the BoE’s 2 percent target and the first increase this year after months of decline.

Inflation is still lower than during the height of the cost of living crisis in 2022 and 2023, where it peaked at 11.1 percent in October 2022.

On Aug. 1, the BoE’s Monetary Policy Committee (MPC), responsible for formulating monetary policy, voted to cut interest rates to 5 percent from 5.25 percent—the first interest rate cut in more than four years and after a significant reduction in inflation.

Economists predict the Bank will hold interest rates at the MPC meeting in September, waiting until November before deciding on whether to cut rates to 4.75 percent.

PA Media contributed to this report.