The UK economy posted a second quarter of strong growth as it recovered from last year’s shallow recession, but lost momentum as it entered the second half of 2024, suggesting the Bank of England remains on track to cut interest rates again.
The Office for National Statistics (ONS) said gross domestic product grew by 0.6% in the second quarter of 2024, after expanding by 0.7% in the first quarter, the fastest in more than two years.
However, in June alone, monthly output growth slowed to zero from 0.4% in May, as heavy rains hampered retail sales and a doctors’ strike contributed to a 1.5% decline in health care activity.
Sterling rose slightly after the data, which did little to change financial markets’ expectations that the Bank of England will cut interest rates once or twice this year.
Uncertainty ahead of Britain’s July 4 general election – which gave Labour a large majority after 14 years in opposition – may also have weighed on growth in June, said Thomas Pugh, an economist at accountancy firm RSM UK.
“Overall, the UK economy has performed strongly in the first half of the year, but we need to see signs of rising incomes and confidence reflected in real spending and investment to drive growth next year,” he said.
Suren Thiru, director of economics at the Institute of Chartered Accountants in England and Wales, expects quarterly growth to slow as interest rates remain near 16-year highs despite the Bank of England’s rate cut this month. Wages growth is also likely to slow and productivity problems will persist in the long term, he added.
Earlier this month, the Bank of England raised its annual growth forecast for 2024 to 1.25% from 0.5%, due to a stronger-than-expected start to the year and expected quarterly growth of 0.0% in the three months to June.
However, forecasts were less optimistic regarding the outlook for the rest of 2024, with growth slowing to 0.4% in the third quarter and 0.2% in the final three months of the year – which, in the Monetary Authority’s view, is closer to the economy’s underlying growth rate.
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