A quick summary
Britain’s economy has extended the recovery from recession last year after recording growth of 0.6% in the three months to June.
Figures from the Office for National Statistics (ONS) show gross domestic product (GDP) continued to grow in the second quarter, after growth of 0.7% in the first three months of 2024. City economists had forecast growth of 0.6%.
Liz McKeown, the ONS director of economic statistics, said:
“The UK economy has now grown strongly for two quarters, following the weakness we saw in the second half of last year.
“Growth across the three months was led by the service sector, where scientific research, the IT industry and legal services all did well.”
However, the UK economy did not grow in June. The ONS said there were anecdotal reports from businesses that general election uncertainty, and public sector strikes, hit activity in June.
GDP per head of population grew by 0.3% in the quarter, but was still lower than a year ago – and before the Covid-19 pandemic starter.
Chancellor Rachel Reeves said economic growth was the Labour government’s “national mission”…
… her predecessor, Jeremy Hunt, said the data were “further proof that Labour have inherited a growing and resilient economy”.
The UK is likely to be the third-fastest G7 economy in the second quarter of 2024, with only Canada yet to publish GDP data.
Since the pandemic, though, it’s the second slowest G7 member:
Over Q2, economy grew 0.6% – on top of 0.7% for Q1.
Puts UK economy 2.3% larger than its pre-pandemic level (not great in G7 terms).
Note – Germany will report overhauled GDP estimates shortly (of the kind that produced big upward revisions to other countries’ GDP) pic.twitter.com/wOhocMD0IV
— Andy Bruce (@BruceReuters) August 15, 2024
Economists welcomed the GDP report.
Deutsche Bank said the near-term economic outlook has improved, while PWC predicts the second half of 2024 will be strong too.
But, the New Economics Foundation said the government needs to invest more in infrastructure, to support growth.
Key events
This chart from Andy Bruce of Reuters shows how GDP per head has – finally – picked up this year, but remains below its pre-Covid levels:
Arguably biggest data point is that GDP per capita has risen now for two quarters running.
Still 0.9% below its pre-pandemic peak, but it’s a positive development. pic.twitter.com/x48WY24uMp
— Andy Bruce (@BruceReuters) August 15, 2024
Just in: UK productivity has weakened, highlighting the underlying problems within the economy.
New data from the Office for National Statistics shows that output per hour worked fell by 0.1% in April-June this year, compared with the same quarter in 2023.
The ONS explains:
Output per hour worked decreased because hours worked increased more (1.0%) than gross value added (GVA) (0.9%) in the same period.
Less happily, Britain’s trade deficit has widened.
The UK’s trade in goods deficit widened by £7.8bn to £52.4bn in April-June, because imports of goods rose by more than exports.
The ONS reports there was a rise in imports of machinery and transport equipment from both EU and non-EU countries, as well as a rise in fuel imports from non-EU countries.
The UK’s trade gap with the European Union widened too. Exports to the EU increased by £1.4bn in June, to £15.6bn, while imports rose by £2.1bn to £26.9 in the month.
Investec: Sun is breaking through in UK economy
Despite today’s “uninspiring” growth data for June, analyst at Investec say they remain optimistic on the UK’s prospects as an investment destination.
The political landscape is more stable than some of the UK’s allies, economic activity is much stronger relative to this point last year and the monetary policy easing cycle has commenced. When it comes to the UK, the sun appears to be breaking through the storm clouds.
Although the economy stagnated in June, it didn’t actually shrink.
George Buckley of Nomura points out that UK GDP has not fallen in any of the past six months, having grown by a total of 1.5% (3% annualised) over that period, adding
That’s quite a result for what is a volatile series.
As this chart shows, the last monthly contraction was in December:
Hunt: Labour have inherited a growing and resilient economy
Jeremy Hunt, the former Conservative chancellor, has seized on today’s GDP report as proof that he didn’t leave the new Labour government a shambles to clean up.
Hunt says today’s growth figures are “further proof that Labour have inherited a growing and resilient economy”.
He posted on X:
The Chancellor’s attempt to blame her economic inheritance on her decision to raise taxes – tax rises she had always planned – will not wash with the public.
Labour promised over 50 times in the election they would not raise people’s taxes and we will hold them to account on their promises.
Today’s figures are yet further proof that Labour have inherited a growing and resilient economy.
The Chancellor’s attempt to blame her economic inheritance on her decision to raise taxes – tax rises she had always planned – will not wash with the public.
Labour promised… https://t.co/44w11LRDT0
— Jeremy Hunt (@Jeremy_Hunt) August 15, 2024
However, as we’ve covered earlier in this blog, the strong growth in Q1 and Q2 2024 follows a very weak 2023 – real GDP is estimated to have increased by 0.1% last year.
And real GDP per head of population is still 0.1% lower than a year ago (see here)
The increase in UK real wages – with earnings rising faster than inflation – is one key factor fuelling growth this year.
Jeremy Hunt’s cuts to national insurance also helped, argues James Smith, developed markets economist at ING, who explains:
Admittedly, the economy flatlined if you look at June specifically. But overall second quarter growth of 0.6%, hot on the heels of 0.7% in the first quarter, marks a remarkable rebound from a very minor technical recession in the second half of last year.
The most obvious explanation is the improvement in real wages the UK economy is experiencing. The impact of lower natural gas prices, coupled with much more modest increases in food prices, comes at a time when nominal wage growth has stayed north of 5% over recent months.
The most acute phase of the mortgage squeeze had also passed by the end of 2023, and that, combined with the impact of some personal tax cuts last November and again in March, probably helped too.
Deutsche Bank: Near-term economic outlook has improved
Today’s GDP report is good news for Rachel Reeves, and the Bank of England, says Sanjay Raja, UK chief economist at Deutsche Bank Research.
Raja says the UK recorded “another stellar quarter” in April-June, but also sees a slowdown ahead.
He told clients this morning:
Q2-24 GDP growth surged for a second straight quarter hitting 0.6% q-o-q. Much of the growth was in line with our expectations, with household spending expanding by 0.2% q-o-q and business investment shrinking by 0.1% q-o-q. The bulk of the uplift in growth came from government spending (1.6% q-o-q) with stocks and net acquisitions also seeing big uplifts.
The good news is that this should lift the overall size of the economy, leaving the Chancellor with a slightly better near-term outlook than what the OBR presented in March. For the Bank of England, the slightly lower growth rate (including its composition) should leave the door open to further rate cuts – particularly given yesterday’s weaker inflation data.
But, we shouldn’t expect the strong growth in the first half of 2024 to last, Raja adds:
We should see some slowdown. Indeed, June GDP flatlined, with the services sector shrinking by 0.1% m-o-m. Carry-over effects into Q3-24 will be weaker. And catch-up effects, following on from the short and shallow technical recession we had in H2-23, will likely diminish.
Deutsche Bank predict the economy will grow by 1.2% this year, rising to 1.6% in the next two years.
The UK is now 2.3% larger than its level before the Covid-19 pandemic hit the global economy at the start of 2020.
That’s a weaker recovery than seen in the US, Canada, France and Italy, as this chart from today’s GDP report shows:
The Resolution Foundation reports that the UK’s record on growth since the eve of the pandemic is the second worst in the G7, higher only than Germany’s 0.2 per cent.
Simon Pittaway, senior economist at the Resolution Foundation, says:
“The UK economy has continued to bounce back from its recession last year, and has recorded the strongest growth of any G7 economy over the past six months.
“But that’s where the good news ends. Britain’s medium-term record is far less impressive, and has been driven by a growing population rather than rising productivity.
“Without a return to productivity growth, living standards will continue to stagnate and Britain will continue to fall behind its peers.”
The bigger picture is that the UK economy needs government investment to improve public services, and produce more green energy, argues Lydia Prieg, head of economics at the New Economics Foundation.
Prieg says:
“Small improvements in GDP don’t change the fact that the UK economy has long been at a standstill because of over a decade of underinvestment by successive governments.
If this government wants to set us on a new path it can’t just rely on private investment. This approach has been tried and tested – it’s left us with crumbling hospitals, sky-high energy bills and a second-rate public transport system.
Now we need this government to make smart public investments: in renewables to get energy bills down, in green industry and infrastructure to boost growth and wages, and in the NHS and social security to help us keep healthy.”
UK heading for bronze medal in G7 growth contest
Labour’s goal is to secure the highest sustained growth in the G7.
Today’s GDP data suggests the economy was near the front of the G7 pack as the new government took office, but not top of the podium.
Data released overnight shows that Japan grew at an annualised rate of 3.1% in the second quarter of 2024 – which means a quarterly rise of almost 0.8%.
That puts Japan ahead of the US, where GDP increased at an annual rate of 2.8% in Q2 (or quarterly growth of 0.7%).
Growth has been more modest in the eurozone, which only expanded by 0.3% in Q2 as Germany shrank slightly.
We don’t get official Q2 data for Canada until the end of August, though; Statistics Canada says the latest data suggests that the economy expanded 0.5% in the second quarter of 2024.
One quarter’s data doesn’t a full insight into an economy, but as things stand…
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Japan: +0.8% growth in Q2
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US: 0.7% growth in Q2
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UK: +0.6% growth in Q2
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Canada: estimated to have grown by 0.5% in Q2
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France: 0.3% growth in Q2
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Italy: 0.2% growth in Q2
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Germany: contracted by 0.1% in Q2
Reeves: We will make all the country better off
Chancellor Rachel Reeves is not hanging out the bunting.
Following the news that the economy grew by 0.6% in April-June (a decent growth rate), Reeves says:
“The new Government is under no illusion as to the scale of the challenge we have inherited after more than a decade of low economic growth and a £22 billion black hole in the public finances.
“That is why we have made economic growth our national mission and we are taking the tough decisions now to fix the foundations, so we can rebuild Britain and make every part of the country better off.”
Today’s growth statistics provide more evidence that the economy is gradually turning a corner as the new government takes office, says Jake Finney, economist at PwC.
Finney expects strong growth in the second half of the year too:
UK real GDP expanded by 0.6% in the second quarter of 2024, powered by strong growth in the services sector, despite the fact that activity flatlined in June.
“There is good reason to expect that the second half of 2024 will be strong too, given that wages are growing in real terms and the Bank of England has started to loosen monetary policy.
Our modelling indicates that the economy will grow by 1% across 2024 as a whole, up from 0.1% last year. Though even this could be an underestimate, if there is an upturn in consumer spending as the economic climate improves.