The UK economy experienced faster growth than expected in June, largely driven by a surge in manufacturing production. Monthly GDP rose by 0.5%, with manufacturing seeing an unusual 2.4% increase between May and June.[0] Overall, second-quarter economic growth came in at 0.2%, slightly higher than anticipated.
This growth was boosted by a recovery in car manufacturing and a particularly strong June. Lloyds Bank noted that the economy grew by a faster than expected 0.5% in June, rebounding from a 0.1% contraction in May. Economists had forecasted a 0.2% increase in June, making the actual growth rate even more impressive.[1]
The increase in GDP was primarily driven by a 1.8% lift in production output, a 1.6% growth in construction, and a more modest 0.2% increase in services.[2] The hot weather during this period was said to have positively impacted construction and hospitality sectors.[2]
Manufacturing also experienced strong growth, surpassing economists' expectations of a 0.2% increase with a notable 2.4% rise.[2] This growth was attributed to the car manufacturing and pharmaceutical industries, which saw particularly buoyant growth.[3]
Chancellor Jeremy Hunt expressed optimism about the economy, stating that the actions being taken to combat inflation were starting to take effect, laying the necessary foundations for further economic growth.[3] The Bank of England also forecasted that the UK would avoid a recession and could potentially outpace Germany, France, and Italy in terms of long-term growth.[4]
However, there are still concerns about the UK economy's overall performance and its ability to fully recover from the effects of the COVID-19 pandemic. Unlike its G7 counterparts, the UK has not yet returned to pre-pandemic levels of output.[5] The Bank of England expects growth to remain below pre-pandemic rates in the medium term.[5] Forecasts from the National Institute of Economic and Social Research suggest that the UK may not surpass its pre-pandemic level until the third quarter of 2024, resulting in five years of lost economic growth.[3]
The preliminary reading of the Purchasing Managers' Index for July showed minimal growth in UK private sector output, indicating that the economy's feeble growth may continue beyond the second quarter.[5]
Despite the positive second-quarter growth, the UK economy still faces challenges, particularly in terms of productivity growth. Without significant improvement in productivity, it may be difficult for the economy to sustain long-term growth.[6] In comparison, the US economy grew at an annualized rate of 2.4% in the second quarter, highlighting the disparity between the UK and US economies.
Overall, the UK's stronger than expected second-quarter growth is a positive sign for the economy, but there are lingering concerns about its ability to fully recover and achieve sustainable long-term growth.[1] It will be essential for policymakers and businesses to continue implementing measures to support economic recovery and address any remaining challenges.
0. “UK manufacturing surge lifts second quarter growth” ING Think, 11 Aug. 2023, https://think.ing.com/snaps/uk-manufacturing-surge-lifts-second-quarter-growth
1. “UK Economy Surprises With Strongest Growth in More Than Year” Yahoo Finance, 11 Aug. 2023, https://finance.yahoo.com/news/uk-economy-stronger-expected-coronation-060607504.html
2. “FTSE 100 analysis: UK GDP surprise lifts pound and sinks stocks – Top UK stocks” FOREX.com US, 11 Aug. 2023, https://www.forex.com/en-us/news-and-analysis/ftse-100-analysis-uk-gdp-lifts-pounds-and-sinks-stocks-top-uk-stocks
3. “UK economy shrugs off recession risk after growing faster than expected” City A.M., 11 Aug. 2023, https://www.cityam.com/uk-economy-shrugs-off-recession-risk-after-growing-faster-than-expected/
4. “FTSE 100 Falls On Trader Caution After Strong UK GDP Data” Morningstar, 11 Aug. 2023, https://www.morningstar.com/news/dow-jones/202308112272/ftse-100-falls-on-trader-caution-after-strong-uk-gdp-data
5. “UK economy records surprise growth. It may not last” WENY-TV, 11 Aug. 2023, https://www.weny.com/story/49398174/uk-economy-records-surprise-growth-it-may-not-last
6. “UK economy grows by 0.5% in June – defying expectations” The Spectator, 11 Aug. 2023, https://www.spectator.co.uk/article/uk-economy-grows-by-0-5-defying-expectations/
