Economic Recovery in the UK Accelerates with 0.6% Growth

Image Credits: BBC

Los Angeles/Aug 15, 2024
NRIpress.club/Ramesh/A.Gary Singh

Between April and June, the UK economy expanded by 0.6%, sustaining its recovery trajectory from last year’s recession. This growth is consistent with expectations and builds on a 0.7% rise in the year's first quarter.

The services sector, particularly the IT industry, legal services, and scientific research, drove the growth. Services are the largest contributor to the UK economy, greatly exceeding manufacturing and construction, both of which experienced a decline in output during this period.

"The UK economy has now shown strong growth for two consecutive quarters after the weakness in the latter half of last year,” said Liz McKeown, director of economic statistics at the Office for National Statistics, which released the data.

Last year, the UK economy experienced a brief and mild recession, defined by two consecutive quarters of declining economic activity. While gross domestic product (GDP), a key indicator of all economic activities by businesses, governments, and individuals, increased over the recent quarter, growth was stagnant in June.

Though the services sector contributed to economic growth over the three-month period, it was a hindrance in June. Industrial action by junior doctors impacted growth, with NHS England reporting 61,989 appointment cancellations due to strikes from 27 June to 2 July.

Economists have cautioned that growth may slow in the latter half of 2024. Anna Leach, chief economist at the Institute of Directors, noted that businesses reported limited activity during the summer months, likely influenced by persistently high-interest rates.

Earlier in August, the Bank of England reduced interest rates to 5%, marking its first cut in four years. “The challenge for the government is to significantly improve the UK’s economic performance,” said Ms. Leach. "There are no quick fixes here: the government must adhere to its long-term infrastructure investment commitments."

The economy was a central issue in the general election, which Labour won decisively after 14 years of Conservative governance. Prime Minister Sir Keir Starmer pledged to "unleash Britain's potential" and announced plans in the King's Speech, including reforms to the planning system to facilitate housing and infrastructure development.

Chancellor Rachel Reeves stated, "The new government fully recognizes the scale of the challenges we inherited after over a decade of slow economic growth." However, shadow chancellor Jeremy Hunt asserted that the GDP figures "further prove that Labour inherited a growing and resilient economy."

The manufacturing sector's performance was mixed from April to June. While overall output declined during the quarter, there was an uptick in June. Matthew Knight, commercial manager at RNA, a Birmingham-based firm specializing in automation equipment, told the BBC, "Business is very strong; we're quite busy. We can sell to various countries, allowing us to adapt if one market isn't performing well."

Knight added that business is on the rise, attributing this partly to lower interest rates, as many customers finance RNA's equipment instead of purchasing it outright. The ONS also reported a 0.1% dip in construction sector output between April and June due to a decline in new building, although repair and maintenance work increased. The ONS noted that the sector's decline is slowing, but a Bank of England survey found that “any improving sentiment is unlikely to translate into activity until later this year.”

Construction could benefit if the Bank implements further interest rate cuts this year. Recent inflation data revealed an increase to 2.2% in the year leading up to July, exceeding the Bank of England's 2% target. However, inflation within the services sector, which the Bank considers when setting interest rates, continued to decrease.

Capital Economics stated that although the services sector expanded between April and June, "the recent strength of activity won’t prevent further declines in services inflation." They anticipate the Bank will reduce interest rates twice more this year, lowering them to 4.5%.

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