UK economy avoids stagnation with 0.2% growth between April and June – business live

Rishi Sunak has claimed the Government’s plan was working, after this morning’s GDP figures showed the UK economy grew by 0.2% in the second quarter of the year.

Sunak said:

This is good news. At the beginning of the year I made growing the economy one of my top priorities, and we are making progress.

“There’s still more work to do, but today’s figures show the plan is working.”

The PM will obviously be relieved that the downturn that was feared last winter has been avoided, although some economists do predict the economy could still drop into a recession (see earlier post).

Also, quarterly growth of 0.2% is still weak in historic terms. Over 1980 to 2014, for example, real GDP growth averaged 2.2% per year.

Capital Economics, the City consultancy, are sticking with their forecast that the UK is heading for a mild recession later this year.

Ruth Gregory, their deputy chief UK economist, told clients that the 0.5% rise in GDP in June was mostly due to the return to the normal number of working days in June after May’s bank holiday for the King’s Coronation.

Thus, it makes the economy look stronger than it really is.

Gregory added:

Overall, the bank holiday, unusually warm weather and strikes make it hard to judge the true health of the economy. But our sense is that underlying activity is still growing, albeit at a snail’s pace. We still think that with most of the drag from higher interest rates still to come, GDP will fall in Q3 and a mild recession will begin.

That may not prevent the Bank from raising interest rates from 5.25% now to 5.50% in September. But it may mean that rates don’t rise as far as the 5.75-6.00% envisaged by the consensus and investors.

Full story: UK economy grows faster than expected after surprisingly strong June

Jasper Jolly

The UK economy grew faster than expected in the second quarter of this year after growth was boosted by a recovery in car manufacturing and a surprisingly strong June.

UK GDP increased by 0.2% in April to June, up from 0.1% in the previous three months and the best quarterly reading in more than a year, according to the Office for National Statistics (ONS).

The data surprised economists, with a poll of them beforehand forecasting no growth in output during the quarter. The reading was helped by an unexpectedly strong performance in June, when output rose by 0.5%. GDP had fallen by 0.1% in May because of an extra bank holiday to celebrate the coronation of King Charles after growth of 0.2% in April.

However, the UK economy still remains 0.2% smaller than it was in the final quarter of 2019, before the onset of the coronavirus pandemic triggered the deepest recession on record.

The cost of living crisis period of the last 18 months remains the weakest period outside a recession for 65 years, the Resolution Foundation thinktank pointed out, despite the UK economy dodging a technical recession of two consecutive quarters of declining GDP.

Darren Morgan, an ONS director of economic statistics, said:

“The economy bounced back from the effects of May’s extra bank holiday to record strong growth in June. Manufacturing saw a particularly strong month, with both cars and the often-erratic pharmaceutical industry seeing particularly buoyant growth.

“Services also had a strong month, with publishing and car sales and legal services all doing well, though this was partially offset by falls in health, which was hit by further strike action. Construction also grew strongly, as did pubs and restaurants, with both aided by the hot weather.”

You can read more here:

Just in: We have some relief for mortgage holders this morning.

Average rates on two and five-year fixed rate mortages have dropped today, according to data provider Moneyfacts.

It says:

The average 2-year fixed residential mortgage rate today is 6.80%. This is down from an average rate of 6.83% on the previous working day.

The average 5-year fixed residential mortgage rate today is 6.28%. This is down from an average rate of 6.33% on the previous working day.

Several lenders have announced cuts to their mortgage rates this week, including Halifax, Nationwide, TSB, NatWest and Virgin Money.

Lower rates would help the economy, as it would cushion the impact of the ‘mortgage timebomb’ facing those households whose existing fixed-rate deals are expiring.

The UK economy is still outperforming expectations, says Thomas Pugh, economist at audit, tax and consulting firm RSM UK.

The growth of 0.2% recorded in the last quarter is “a far cry” from the significant recession that seemed likely at the start of this year, Pugh points out, adding:

‘Strong economic growth in June was much more than just a bounce back from the extra bank holiday in May. Underlying growth rose rapidly suggesting that the economy is coping relatively well with the surge in interest rates and ongoing cost-of living-crisis.

‘While this is good news for the economy, a stronger economy points to inflation falling more slowly than it otherwise might have done. However, there are two reasons not to think interest rates need to go higher than the 5.5% – 5.75% peak already priced in. First, in its latest forecast the MPC had already forecast relatively punchy growth of 0.4% q/q in Q3, even factoring in the recent strength we doubt the economy will breach this. Second, the US economy’s recent experience proves that inflation can fall rapidly without a recession, or even a sharp reduction in growth. As such, we still think a peak of 5.5% or 5.75% looks right.

Pugh adds that growth is likely to fall back in 2024 as the impact from the rise in interest rates continues to grow, saying:

We think the economy will avoid a recession, but only just.’