UK Economy Shows Steady Growth with 0.6% Expansion Amid Recession Recovery

The UK economy demonstrated notable recovery in the second quarter of 2024, growing by 0.6% between April and June. This growth follows a 0.7% increase in the first quarter, signaling a continued rebound from last year’s brief recession. The performance aligns with forecasts and highlights a sustained recovery trajectory.

Growth in the recent quarter was primarily driven by the services sector, particularly the IT industry, legal services, and scientific research. Services have become the largest sector in the UK economy, significantly surpassing manufacturing and construction, both of which experienced declines in output during this period.

Liz McKeown, director of economic statistics at the Office for National Statistics (ONS), noted, “The UK economy has shown strong growth for two consecutive quarters after the weakness observed in the latter half of last year.” The recession last year was marked by two consecutive quarters of economic contraction.

Despite overall growth, June’s economic performance was flat. The services sector, which had bolstered growth throughout the quarter, actually detracted from it in June. Industrial action by junior doctors, resulting in nearly 62,000 canceled NHS appointments from late June to early July, contributed to this stagnation.

Economists have cautioned that the economic momentum might slow in the latter half of 2024. Anna Leach, chief economist at the Institute of Directors, pointed out that businesses have reported modest activity for the summer months, likely influenced by high interest rates. Earlier this month, the Bank of England reduced interest rates to 5% for the first time in four years, aiming to stimulate economic activity.

The challenge for the government, according to Leach, is to enhance the UK’s growth performance. She emphasized the need for sustained infrastructure investment, aligning with commitments made during the recent general election. Labour’s victory after 14 years of Conservative governance brought new promises from Prime Minister Sir Keir Starmer, including changes to planning regulations to facilitate housing and infrastructure development.

Chancellor Rachel Reeves acknowledged the significant economic challenges inherited by the new government, while shadow chancellor Jeremy Hunt argued that the latest GDP figures demonstrate that Labour has inherited a growing and resilient economy.

The manufacturing sector showed mixed results over the quarter. Although overall output was down, there was growth in June, suggesting a potential rebound. Matthew Knight, commercial manager at RNA, a Birmingham-based automation equipment firm, reported increased business activity and attributed this partly to the falling interest rates, which could make financing easier for customers.

The construction sector experienced a slight decline of 0.1% from April to June, primarily due to reduced new building activity, though repair and maintenance work saw growth. The ONS noted that the pace of decline in construction is easing, but a Bank of England survey indicated that any improvement in sentiment might not translate into increased activity until later in the year. Further cuts in interest rates could potentially boost the sector.

Recent inflation data revealed a rise to 2.2% for the year to July, exceeding the Bank of England’s 2% target. However, inflation within the services sector continued to ease. Capital Economics anticipates further reductions in interest rates, predicting two additional cuts to 4.5% later this year, based on the recent trends in services inflation and overall economic activity.

Overall, the UK’s economy shows signs of steady recovery, with growth led by the services sector and cautious optimism about future performance tempered by potential challenges and external factors.