Experts had expected stagnation in the UK in the spring, but GDP has picked up instead. But despite recent resilience, economists are expecting tough times for the UK economy.
The British economy grew unexpectedly in the spring. According to the national statistics office ONS, gross domestic product (GDP) rose by 0.2 percent from April to June compared to the previous quarter. Analysts had expected economic output to stagnate in the second quarter. Year-on-year, the UK economy grew 0.4 percent.
The British economy was thus able to build on the slight growth at the beginning of the year. In the first three months of the year, economic output increased by 0.1 percent compared to the previous quarter.
In June alone, GDP rose noticeably by 0.5 percent compared to the previous month and was therefore more than twice as strong as expected. Analysts had expected growth of just 0.2 percent on average, after economic output had shrunk by 0.1 percent in May.
Strength industrial production
There was also an unexpectedly strong development in industrial production. In June, industrial companies increased their production by 1.8 percent month-on-month, according to the statistics office. Analysts had expected growth of just 0.2 percent on average after production fell by 0.6 percent in May. The statistics office said companies cited an additional national holiday in May as the reason for the increase in June output compared to May. Corporate investments also increased by 3.4 percent compared to the previous quarter.
“The measures we have taken to fight inflation are starting to take effect, which means we are laying a solid foundation for the economy to grow,” Treasury Secretary Jeremy Hunt said.
Inflation remains high
Still, the country remained the only major advanced economy not yet to return to late-2019 levels, official data showed on Friday. In the second quarter, the British economy is now 0.2 percent below the level at the end of 2019. In Germany, economic output is already 0.2 percent above the level of 2019, in France 1.7 percent, in Italy 2.2 percent and in the United States even 6.2 percent.
Great Britain is still suffering from comparatively high inflation. For example, inflation in the UK had fallen in July. However, at 7.9 percent, the annual inflation rate was still well above the levels in the euro zone and the USA. Despite the measures taken by the Bank of England, inflation is still a long way from the two percent target.
Will interest rates continue to rise?
At the beginning of the month, the British central bank raised the key interest rate again by a quarter of a percentage point to 5.25 percent. It was the 14th interest rate hike since the end of 2021. At the time, the interest rate was just above zero. The key interest rate is currently at its highest level since the financial crisis of 2008. The unexpected growth could lay the foundation for further rate hikes by the central bank. The central bank itself had only expected growth of 0.1 percent for the second quarter.
Most economists expect the UK economy to face difficult times despite recent resilience. “With much of the burden of higher interest rates still to come, we are maintaining our below-consensus forecast that the UK is headed for a mild recession later this year,” said economist Ruth Gregory of consultancy Capital Economics.