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UK economy posts surprise 0.3% growth in three months to June UK economy posts surprise 0.3% growth in three months to June
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GDP figure slower than previous quarter but beats expectations thanks to 0.4% expansion in JuneGDP figure slower than previous quarter but beats expectations thanks to 0.4% expansion in June
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The UK economy grew at a faster rate than expected in the second quarter, official figures show, despite a slowdown from a strong start to the year amid pressure from tax increases and Donald Trump’s global trade war.The UK economy grew at a faster rate than expected in the second quarter, official figures show, despite a slowdown from a strong start to the year amid pressure from tax increases and Donald Trump’s global trade war.
Figures from the Office for National Statistics showed growth in gross domestic product (GDP) slowed to 0.3% in the three months to the end of June, down from a rate of 0.7% in the first quarter. Figures from the Office for National Statistics (ONS) showed growth in gross domestic product slowed to 0.3% in the three months to the end of June, down from a rate of 0.7% in the first quarter.
Although beating City forecasts of a slowdown to 0.1% growth, the latest snapshot underscores the challenge for the chancellor, Rachel Reeves, as she considers options for boosting the economy and raising revenues at her autumn budget. Although beating forecasts for a slowdown to 0.1% growth made by City economists and the Bank of England, the latest snapshot underscores the challenge for the chancellor, Rachel Reeves, as she considers options for boosting the economy and raising revenues at her autumn budget.
Liz McKeown, the ONS director of economic statistics, said: “Growth slowed in the second quarter after a strong start to the year. The economy was weak across April and May, with some activity having been brought forward to February and March ahead of stamp duty and tariff changes, but then recovered strongly in June. Liz McKeown, an ONS director of economic statistics, said: “Growth slowed in the second quarter after a strong start to the year. The economy was weak across April and May, with some activity having been brought forward to February and March ahead of stamp duty and tariff changes, but then recovered strongly in June.”
“Across the second quarter as a whole growth was led by services, with computer programming, health and vehicle leasing growing. The latest snapshot showed the economy grew at a faster rate than expected in June of 0.4%, after two consecutive months of shrinking output. The ONS also revised its initial estimate for April’s GDP contraction from -0.3% to -0.1%.
“Construction also increased while production fell back slightly. Growth for the quarter was also boosted by updated source data for April, which while still showing a contraction, was better than initially estimated.” Reeves said the quarterly figures were positive as it showed that Britain had recorded a strong start to the year and continued growth in the second quarter, “but there is more to do to deliver an economy that works for working people”.
The figures were released as monthly figures showed the economy returned to growth in June, expanding by 0.4%, surpassing predictions for 0.1% growth in a recovery from two months of negative output in April and May. She said: “I know that the British economy has the key ingredients for success but has felt stuck for too long.”
Ben Jones, the lead economist at the CBI, said: “A modest rebound in June brought Q2 to a positive close – but today’s figures confirm that the strong growth seen earlier this year was a one-off and underlying conditions remain fragile.” According to the latest snapshot, growth in the second quarter was led by the country’s dominant services sector expanding by 0.4%, with computer programming, health and vehicle leasing driving activity.
Reeves said: “Today’s economic figures are positive with a strong start to the year and continued growth in the second quarter. But there is more to do to deliver an economy that works for working people. Construction output rose by 1.2%, supported by large infrastructure projects. Manufacturing grew by 0.3%, after growth of 1.1% in the first quarter when companies had rushed to beat the introduction of Trump’s tariffs.
“I know that the British economy has the key ingredients for success but has felt stuck for too long. It comes as the chancellor prepares for a difficult autumn budget amid mounting speculation over tax rises, as a weaker growth outlook, higher debt interest payments and a series of U-turns on welfare cuts contribute to a yawning deficit in the government finances that is estimated to be more than £40bn.
“That is why we’re investing to rebuild our national infrastructure, cutting back on red tape to get Britain building again and boosting the national minimum wage to make work pay. There’s more to do and today’s figures only fuel my ambition to deliver on our Plan for Change.” Reeves has pledged to use the set-piece fiscal event to prioritise fixing Britain’s dismal productivity record, using an exclusive article in the Guardian to downplay speculation over tax rises.
Mel Stride, the shadow chancellor, said: “Any economic growth is welcome, but with business leaders saying that all indicators are flashing red, and key economists are warning that Rachel Reeves has created a £50bn black hole in the public finances, Rachel Reeves’ economic vandalism is clear.” However, the economy faces headwinds from Trump’s trade war and a sluggish domestic outlook. The UK had recorded the fastest growth rate in the G7 in the first quarter but despite beating forecasts for the three months to June, growth still slowed.
Business leaders warned that the economy had been dented by the chancellor’s £25bn increase in employer national insurance contributions and said further tax rises risked weighed further on the economy.
“Without thriving firms the economy will continue to struggle,” said Stuart Morrison, the research manager at the British Chambers of Commerce.
“Tax burdens at home, alongside uncertain global trading conditions, created a very challenging environment for the UK’s small and medium-sized enterprises in the second quarter.”
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Reeves has pledged to use her autumn budget to prioritise fixing Britain’s dismal productivity track record, using an exclusive article in the Guardian on Wednesday to downplay speculation over tax rises. The latest figures showed business investment fell by 4% in the second quarter, although it was 0.1% higher than a year earlier.
While the stronger-than-expected growth performance in the second quarter will hand some relief to the chancellor, economists said it could complicate the Bank of England’s path to cutting interest rates. Mel Stride, the shadow chancellor, said: “Any economic growth is welcome, but with business leaders saying that all indicators are flashing red, and key economists are warning that Rachel Reeves has created a £50bn black hole in the public finances, Rachel Reeves’s economic vandalism is clear.”
Threadneedle Street had forecast a slowdown to 0.1% in the second quarter. Last week it warned that continued growth and rising inflationary pressures driven by the surging price of food could force it to delay further cuts to borrowing costs. The stronger-than-expected second quarter could also complicate the Bank of England’s path to cutting interest rates. The pound rose slightly against the US dollar.
Threadneedle Street had forecast a slowdown to 0.1% in the second quarter. Last week it warned that continued growth and rising inflationary pressures driven by the soaring price of food could force it to delay further cuts to borrowing costs.
Nicholas Hyett, the investment manager at Wealth Club, said the figures raised “some interesting questions” for the Bank after it cut its key base rate from 4.25% to 4% last week.
“Better leave the economy sputtering into life than risk turbocharging price rises with further interest rate cuts.”