UK Growth

This morning preliminary figures from the ONS indicated that UK GDP grew 0.6% on a quarterly basis over the second quarter of the year, meeting market forecasts and making a marginal slowdown from Q1’s print.

The economic expansion over Q2 was led by a rise in output from the UK’s services sector which was itself assisted by growth in the scientific, IT and legal services sectors. A sizeable 1.4% rise in government consumption – driven by public administration and defence – also fed into the county’s overall growth.

With this representing the second consecutive quarter of relatively robust output, UK economic output now appears to have turned a corner from the relatively stagnant growth seen over H2 2023. The latest data also indicates that the UK economy is now 2.3% larger than its pre-pandemic size.

That said, with GDP coming in flat on a monthly basis for June, the UK economy is far from out of the woods. A fall in exports over the month also fed into a rise in the UK’s trade deficit which soared to £18.9bn in June, against the consensus of £16bn.

Moreover, when examining the quarterly figures, the UK’s production and consumption sectors contracted as business investment fell 0.1%.

With attention firmly focused on how the latest growth figures will impact the BoE’s monetary policy, the general easing of overall growth from Q1 and the specific slowdown in UK industrial output, will no doubt feed into calls from those on the Dovish side of the BoE for rates to be loosened sooner.

Indeed, following the release markets marginally upwardly revised their expectations of a September rate cut as participants price in two cuts between now and the end of the year.

Last month, the International Monetary Fund upwardly revised their growth forecast for the UK economy, forecasting growth of 0.7% this year and 1.5% over 2025.

With the IMF forecasting 1.3% growth for Germany and France next year, economists at the Washington, D.C based organisation expect UK growth to outpace all other major European economies.

UK economic growth is not however expected to outpace that of the US or Canada, with expansions of 1.8 and 2.4% forecasted in the North American economies, respectively.

Preliminary figures from Eurostat indicate that the Eurozone’s output grew 0.3% on quarterly basis over the second quarter of the year. This came in line with expectations and was unchanged from the last quarter, which together mark the equal strongest growth since Q3 2022.

The figures will make for welcome reading for ECB policy makers who in their last monetary policy statement cautioned that “incoming information indicates that the euro area economy grew in the second quarter, but likely at a slower pace than in the first quarter.”

While growth was seen across France (which expanded 0.3% on a quarterly basis), Italy (which expanded 0.2%) and Spain (which expanded 0.8%), analysts indicate that the German economy contracted 0.1%. This came as the Latvian economy shrank as much as 1.1%.

On an annualised basis, GDP across the twenty-member state Eurozone grew 0.6%, marking the highest print in five quarters.

With the ECB forecasting growth of 0.8% over the course of the year (following flat growth last year), at their last monetary policy meeting policy makers considered how the currency union’s recovery is expected to be “supported by consumption, driven by the strengthening of real incomes resulting from lower inflation and higher nominal wages.”

Frankfurt also said that “exports should pick up alongside a rise in global demand” while “monetary policy should exert less of a drag on demand over time”.