UK grows 0.6% in Q2
Newsflash: The UK economy grew by 0.6% in the second quarter of the year, as it continues to pull away from last year’s shallow recession.
That’s a slight slowdown on the first quarter, where the economy expanded by 0.7%, but still a healthy growth rate – and in line with expectations.
The Office for National Statistics reports that the services sector drove growth, while the production sector and construction both shrank slightly.
GDP is estimated to have grown 0.6% in Quarter 2 (Apr to June) 2024, following growth of 0.7% in Quarter 1 (Jan to Mar).
Services (+0.8%) grew while production (-0.1%) and construction (-0.1%) both contracted.
Read GDP first quarterly estimate, UK ➡️ https://t.co/h1NTYmpipY pic.twitter.com/cOj8VlAp6x
— Office for National Statistics (ONS) (@ONS) August 15, 2024
Compared with a year ago, real GDP is estimated to have increased by 0.9%.
Key events
Although the economy stagnated in June, it didn’t actually shrink.
George Buckley of Nomura points out that UK GDP has not fallen in any of the past six months, having grown by a total of 1.5% (3% annualised) over that period, adding
That’s quite a result for what is a volatile series.
As this chart shows, the last monthly contraction was in December:
Hunt: Labour have inherited a growing and resilient economy
Jeremy Hunt, the former Conservative chancellor, has seized on today’s GDP report as proof that he didn’t leave the new Labour government a shambles to clean up.
Hunt says today’s growth figures are “further proof that Labour have inherited a growing and resilient economy”.
He addss:
The Chancellor’s attempt to blame her economic inheritance on her decision to raise taxes – tax rises she had always planned – will not wash with the public.
Labour promised over 50 times in the election they would not raise people’s taxes and we will hold them to account on their promises.
Today’s figures are yet further proof that Labour have inherited a growing and resilient economy.
The Chancellor’s attempt to blame her economic inheritance on her decision to raise taxes – tax rises she had always planned – will not wash with the public.
Labour promised… https://t.co/44w11LRDT0
— Jeremy Hunt (@Jeremy_Hunt) August 15, 2024
However, as we’ve covered earlier in this blog, the strong growth in Q1 and Q2 2024 follows a very weak 2023 – real GDP is estimated to have increased by 0.1% last year.
And real GDP per head of population is still 0.1% lower than a year ago (see here)
The increase in UK real wages – with earnings rising faster than inflation – is one key factor fuelling growth this year.
Jeremy Hunt’s cuts to national insurance also helped, argues James Smith, developed markets economist at ING, who explains:
Admittedly, the economy flatlined if you look at June specifically. But overall second quarter growth of 0.6%, hot on the heels of 0.7% in the first quarter, marks a remarkable rebound from a very minor technical recession in the second half of last year.
The most obvious explanation is the improvement in real wages the UK economy is experiencing. The impact of lower natural gas prices, coupled with much more modest increases in food prices, comes at a time when nominal wage growth has stayed north of 5% over recent months.
The most acute phase of the mortgage squeeze had also passed by the end of 2023, and that, combined with the impact of some personal tax cuts last November and again in March, probably helped too.
Deutsche Bank: Near-term economic outlook has improved
Today’s GDP report is good news for Rachel Reeves, and the Bank of England, says Sanjay Raja, UK chief economist at Deutsche Bank Research.
Raja says the UK recorded “another stellar quarter” in April-June, but also sees a slowdown ahead.
He told clients this morning:
Q2-24 GDP growth surged for a second straight quarter hitting 0.6% q-o-q. Much of the growth was in line with our expectations, with household spending expanding by 0.2% q-o-q and business investment shrinking by 0.1% q-o-q. The bulk of the uplift in growth came from government spending (1.6% q-o-q) with stocks and net acquisitions also seeing big uplifts.
The good news is that this should lift the overall size of the economy, leaving the Chancellor with a slightly better near-term outlook than what the OBR presented in March. For the Bank of England, the slightly lower growth rate (including its composition) should leave the door open to further rate cuts – particularly given yesterday’s weaker inflation data.
But, we shouldn’t expect the strong growth in the first half of 2024 to last, Raja adds:
We should see some slowdown. Indeed, June GDP flatlined, with the services sector shrinking by 0.1% m-o-m. Carry-over effects into Q3-24 will be weaker. And catch-up effects, following on from the short and shallow technical recession we had in H2-23, will likely diminish.
Deutsche Bank predict the economy will grow by 1.2% this year, rising to 1.6% in the next two years.
The UK is now 2.3% larger than its level before the Covid-19 pandemic hit the global economy at the start of 2020.
That’s a weaker recovery than seen in the US, Canada, France and Italy, as this chart from today’s GDP report shows:
The Resolution Foundation reports that the UK’s record on growth since the eve of the pandemic is the second worst in the G7, higher only than Germany’s 0.2 per cent.
Simon Pittaway, senior economist at the Resolution Foundation, says:
“The UK economy has continued to bounce back from its recession last year, and has recorded the strongest growth of any G7 economy over the past six months.
“But that’s where the good news ends. Britain’s medium-term record is far less impressive, and has been driven by a growing population rather than rising productivity.
“Without a return to productivity growth, living standards will continue to stagnate and Britain will continue to fall behind its peers.”
The bigger picture is that the UK economy needs investment to improve public services, and produce more green energy, argues Lydia Prieg, head of economics at the New Economics Foundation.
Prieg says:
“Small improvements in GDP don’t change the fact that the UK economy has long been at a standstill because of over a decade of underinvestment by successive governments.
If this government wants to set us on a new path it can’t just rely on private investment. This approach has been tried and tested – it’s left us with crumbling hospitals, sky-high energy bills and a second-rate public transport system.
Now we need this government to make smart public investments: in renewables to get energy bills down, in green industry and infrastructure to boost growth and wages, and in the NHS and social security to help us keep healthy.”
UK heading for bronze medal in G7 growth contest
Labour’s goal is to secure the highest sustained growth in the G7.
Today’s GDP data suggests the economy was near the front of the G7 pack as the new government took office, but not top of the podium.
Data released overnight shows that Japan grew at an annualised rate of 3.1% in the second quarter of 2024 – which means a quarterly rise of almost 0.8%.
That puts Japan ahead of the US, where GDP increased at an annual rate of 2.8% in Q2 (or quarterly growth of 0.7%).
Growth has been more modest in the eurozone, which only expanded by 0.3% in Q2 as Germany shrank slightly.
We don’t get official Q2 data for Canada until the end of August, though; Statistics Canada says the latest data suggests that the economy expanded 0.5% in the second quarter of 2024.
One quarter’s data doesn’t a full insight into an economy, but as things stand…
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Japan: +0.8% growth in Q2
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US: 0.7% growth in Q2
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UK: +0.6% growth in Q2
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Canada: estimated to have grown by 0.5% in Q2
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France: 0.3% growth in Q2
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Italy: 0.2% growth in Q2
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Germany: contracted by 0.1% in Q2
Reeves: We will make all the country better off
Chancellor Rachel Reeves is not hanging out the bunting.
Following the news that the economy grew by 0.6% in April-June (a decent growth rate), Reeves says:
“The new 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.”
Today’s growth statistics provide more evidence that the economy is gradually turning a corner as the new government takes office, says Jake Finney, economist at PwC.
Finney expects strong growth in the second half of the year too:
UK real GDP expanded by 0.6% in the second quarter of 2024, powered by strong growth in the services sector, despite the fact that activity flatlined in June.
“There is good reason to expect that the second half of 2024 will be strong too, given that wages are growing in real terms and the Bank of England has started to loosen monetary policy.
Our modelling indicates that the economy will grow by 1% across 2024 as a whole, up from 0.1% last year. Though even this could be an underestimate, if there is an upturn in consumer spending as the economic climate improves.
Election uncertainty and strikes may have hit growth in June
Pre-election uncertainty, and industrial action, may both have weighed on the economy in June.
The Office for National Statistics says anecdotal evidence from businesses suggests some clients were reluctant to place orders until they knew who had won the election.
That could have contributed to the lack of growth in June.
The ONS says:
Comments provided for June 2024 suggested some industries may have been affected by the general election held on 4 July 2024. In a range of industries across the economy, businesses stated that customers were delaying placing orders until the outcome of the election was known. These comments covered all of manufacturing, construction, and services.
A strike by junior doctors in late June, and the impact of last year’s Hollywood strikes, could also have hit activity.
The ONS adds:
While perhaps not as frequently mentioned as in recent months, industrial action in certain industries was also cited as a possible reason for reduced output.
This was stated as a reason for reduced output in human health with the junior doctors strikes towards the end of June, and in TV and film production where the Screen Actors Guild strikes in America in 2023 are still affecting UK production schedules.
Path for UK interest rate cuts ‘looks to be set’
The UK economy is in ‘good health’, says Neil Birrell, chief investment officer at Premier Miton Investors:
Following this morning’s Q2 GDP report, Birrell says:
“The second quarter seems like a long time ago, but the GDP data confirms that the UK economy is in good health. The Bank of England is in the nice position, unlike other central banks, of having a level of surety in the data it is seeing, when setting policy.
With inflation playing ball as well, the path to lower interest rates looks to be set, the timing of the cuts is now the focus.”
GDP per head lower than a year ago
When you adjust for population changes, growth was less vigorous
The ONS reports that real GDP per head is estimated to have increased by 0.3% in Quarter 2 2024 – only half as fast as the headline growth rate for the quarter.
Real GDP per head is 0.1% lower compared with the same quarter a year ago.
GDP per head, or per capita, is commonly used as a broad measure of average living standards or economic well- being.
The UK economy has finally shaken off its slumber of recent years, says Ben Jones, lead economist at the CBI:
“After a strong performance in May, a slowdown in GDP growth was always on the cards for June. But a second successive quarter of above-trend growth suggests the UK economy has finally shaken off its slumber of recent years.
“We think the quarterly data probably overstates the underlying momentum in the economy, with recent CBI surveys of activity remaining fairly subdued. But firms nonetheless appear confident that the recovery will continue.
“After a challenging, few years, and ahead of the Autumn budget, the focus is shifting to the steps needed to raise the UK’s growth rate over the long-term. This could include the reforms set out in our recent business tax roadmap, which can incentivise private investment and together with a Net Zero Investment plan boost green growth, one of the fastest growing sectors in the country.”
This chart shows how the economy has hauled itself back to growth this year, after a grim 2023:
But, our economics correspondent Richard Partington points out that this year’s growth follows “a lacklustre performance over the past decade, while high living costs, elevated interest rates, and faltering productivity gains keep a lid on momentum”.
The chancellor, Rachel Reeves, has targeted rebooting the economy as Labour’s No 1 priority, arguing that stronger growth would help boost living standards and raise more tax revenue to repair battered public services.
More here:
ONS: UK economy has now grown strongly for two quarters
The UK has now grown “strongly” for two quarters in a row, says ONS director of economic statistics Liz McKeown:
“The UK economy has now grown strongly for two quarters, following the weakness we saw in the second half of last year.
“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.”
Economy stagnated in June
Today’s GDP report also shows the economy did not grow in June.
GDP showed no change in June, the Office for National Statistics reports, following growth of 0.4% in May.
Digging into the details… services output fell by 0.1% in June, while production output grew by 0.8% in the month, and construction output grew by 0.5%
UK grows 0.6% in Q2
Newsflash: The UK economy grew by 0.6% in the second quarter of the year, as it continues to pull away from last year’s shallow recession.
That’s a slight slowdown on the first quarter, where the economy expanded by 0.7%, but still a healthy growth rate – and in line with expectations.
The Office for National Statistics reports that the services sector drove growth, while the production sector and construction both shrank slightly.
GDP is estimated to have grown 0.6% in Quarter 2 (Apr to June) 2024, following growth of 0.7% in Quarter 1 (Jan to Mar).
Services (+0.8%) grew while production (-0.1%) and construction (-0.1%) both contracted.
Read GDP first quarterly estimate, UK ➡️ https://t.co/h1NTYmpipY pic.twitter.com/cOj8VlAp6x
— Office for National Statistics (ONS) (@ONS) August 15, 2024
Compared with a year ago, real GDP is estimated to have increased by 0.9%.
This morning’s data will be the first estimate of GDP in June, rounding off the second quarter of the year.
But previous monthly data has shown that the economy flatlined in April, before growing by 0.4% in May – which was seen as an early boost for the Labour government.
Introduction: UK GDP in focus
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
How strongly, or weakly, was the UK economy growing at the end of Rishi Sunak’s premiership?
We’ll find out shortly, when GDP data for June – and for the second quarter of 2024 – are released.
City economists predict the UK posted a quarter of solid growth. GDP is forecast to have grown by 0.6% in April-June, which would be a slight slowdown on the 0.7% recorded in January-March.
But in June alone, the economy may have stalled – with no growth forecast.
Sanjay Raja, chief UK economist at Deutsche Bank, says the service sector was driving activity in the last quarter:
On our calculations, the services economy will likely bounce up by 0.7% q-o-q – despite expected contractions in both the production and construction sectors over the same quarter.
On the expenditure side, we expect government spending, business investment, inventories, and net acquisitions to provide the bulk of the lift to quarterly GDP.
The strength – or otherwise – of the UK economy will also influence how soon the Bank of England feels confident to cut interest rates again, after inflation rose by less than expected in July:
The agenda
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7am BST: UK GDP report for June
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7am BST: UK trade report for June
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7am BST: UK GDP report for Q2 2024
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9am BST: Norwegian central bank interest rate decision
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9.30am BST: UK labour productivity statistics
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1.30pm BST: US weekly jobless claims
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1.30pm BST: US retail sales for July