UK revises down economic growth but signs of strength remain

Britain’s economy grew more slowly than previously thought in the second quarter, but there were positive signs from household finances and business investment that could encourage finance minister Rachel Reeves as she prepares next month’s budget.

Economic output expanded by 0.5 per cent in the April-to-June period, the Office for National Statistics said on Monday.

The reading was slightly weaker than a preliminary estimate for 0.6 per cent growth in gross domestic product. Economists polled by Reuters had expected the 0.6 per cent rise to be confirmed.

The household saving ratio increased to 10.0 per cent from 8.9 per cent in the first three months of 2024.

Sandra Horsfield, an economist with Investec, said the savings figures as well as growth in wages that is outstripping inflation and a still-strong jobs market meant households were likely to remain confident about future income prospects.

“In other words, there is enough fuel in the tank to keep consumer spending moving up even when the boost from above-inflation wage gains eases off,” Horsfield said.

Gross domestic product per head rose for a second quarter in a row, albeit more slowly than in the first quarter.

Prime Minister Keir Starmer, whose Labour Party won power in July, is seeking to speed up economic growth.

Reeves has suggested some taxes will rise in her first budget on Oct. 30. Recent surveys have shown falls in consumer and business sentiment partly due to concerns about the budget.

But she has also hinted that she might relax rules on public debt, paving the way for more borrowing which could boost investment and the overall economy.

The Bank of England has forecast economic growth will slow to 0.3 per cent in the third quarter but it has said the interest rate cut in August and the expectation of more cuts, plus lower inflation, are likely to boost growth later this year.

STILL A POST-COVID LAGGARD

The data showed a jump in business investment which rose by 1.4 per cent in the second quarter for a third consecutive gain.

Overall, Britain’s GDP growth over the period was stronger than the euro zone’s 0.2 per cent expansion.

Last week, the OECD said Britain was no longer expected to be the weakest economy among big, rich nations as it raised its forecasts for growth in the country to 1.1 per cent in 2024 and 1.2 per cent in 2025, up from previous forecasts of 0.4 per cent and 1.0 per cent.

However, Britain remains one of the slowest countries to recover from the COVID-19 pandemic. Its economy was 2.9 per cent bigger than in late 2019 with Germany the only Group of Seven country faring worse.

Separate data published on Monday showed British house prices in September rose by the most since November 2022 in annual terms, up 3.2 per cent compared with the same month last year.

And BoE figures showed mortgage approvals in August were the highest in two years.

The ONS said economic growth in 2023 as a whole was revised to show a 0.3 per cent expansion, slightly stronger than a previous estimate of a 0.1 per cent increase.

It also said Britain’s current account deficit rose sharply to 28.4 billion pounds ($38.0 billion) in the second quarter, equivalent to 4.0 per cent of GDP but lower than expected by economists in the Reuters poll.