UK Economic Update

LONDON (Reuters) – Britain’s economy grew more slowly than previously thought in the second quarter, but household finances show signs of improvement ahead of next month’s annual budget.

Economic output expanded by 0.5% in the April-to-June period, according to the Office for National Statistics (ONS). This result was slightly weaker than a preliminary estimate of 0.6% growth in gross domestic product (GDP) and below economists’ forecasts predicting another 0.6% increase.

Gora Suri, an economist at PwC, mentioned, “The UK’s GDP grew by slightly less than originally estimated in the second quarter of this year, but overall the UK economic outlook has improved considerably since the start of the year.”

This improvement stems mainly from inflation returning to target, declining interest rates, and increased political stability following the recent election.

The household saving ratio rose to 10.0% in Q2 from 8.9% in the first quarter. Additionally, GDP per head grew for a second consecutive quarter, albeit at a slower rate than earlier in the year.

Prime Minister Keir Starmer, following his Labour Party’s victory in July, aims to accelerate economic growth. Finance Minister Rachel Reeves has hinted that while some taxes may increase in her first budget on Oct. 30, there could also be changes to fiscal rules on public debt, potentially allowing for more borrowing to stimulate investment and growth.

The Bank of England predicts growth will decelerate to 0.3% in the third quarter of 2024 but sees signs that the interest rate cut in August, along with expectations of future cuts and lower inflation, could bolster growth later this year.

Compared to Q2 of 2023, the economy grew by 0.7%, slower than forecasts of 0.9%. After the release of these figures, the British pound exchanged little change against the U.S. dollar.

For 2023 as a whole, economic growth has been revised upward to a 0.3% expansion, slightly stronger than the prior estimate of 0.1%. However, the economy is still thought to have contracted in the third and fourth quarters of last year, which meets the technical definition of a recession.

Additionally, separate data revealed that British house prices saw their most significant annual increase since November 2022, rising by 3.2% compared to the same month last year.