The British economy demonstrated solid growth during the spring, continuing a positive trend as the nation recovers from a shallow recession at the end of last year. According to data released on Thursday by the Office for National Statistics (ONS), the economy expanded by 0.6% from April to June, following a 0.7% increase in the previous quarter.
Liz McKeown, Director of Economic Statistics at the ONS, highlighted that growth in the second quarter was largely driven by the service sector, with significant contributions from scientific research, the IT industry, and legal services.
This week’s economic indicators have further bolstered the outlook, with inflation rising less than anticipated and unemployment rates dropping, defying expectations of an increase. These positive developments, while reflecting the economy under the previous Conservative government, may offer some relief to the new administration led by Prime Minister Keir Starmer of the Labor Party. Starmer’s government has been navigating political challenges, including tensions following anti-immigration riots, exacerbated by economic pressures such as strained public services.
The latest data has strengthened the expectation that the Bank of England may implement further interest rate cuts later this year, with many analysts predicting a reduction in November. Inflation in July rose slightly to 2.2% from 2% in June, but some persistent components of inflation, like service prices, saw their slowest increase in two years.
The Bank of England, which targets a 2% inflation rate, recently cut interest rates for the first time since 2020. Wage growth has also decelerated, with average worker pay still outpacing inflation, providing support to household budgets.
Despite these positive signals, the Bank of England cautioned that underlying momentum in the economy, based on business surveys, appears weaker than the recent data suggests. The central bank forecasts a slowdown in economic growth to 0.4% in the third quarter and 0.2% in the final quarter of the year. The recovery in sectors like construction and the benefits of falling mortgage rates are expected to be gradual, and while traders anticipate multiple rate cuts by next spring, the Bank has signaled that it is not in a hurry to reduce rates further.