By C. Perera, JadeTimes News
The UK economy grew by 0.6% between April and June, marking continued recovery from the recession experienced at the end of the previous year. This growth aligns with economic forecasts and follows a 0.7% expansion in the first quarter of 2024. The services sector, particularly the IT industry, legal services, and scientific research, was the main driver of this growth. However, the manufacturing and construction sectors experienced a decline in output during the same period.
Liz McKeown, the director of economic statistics at the Office for National Statistics highlighted that the UK economy has shown strong growth over the past two quarters, contrasting with the weakness observed in the second half of the previous year. Last year, the UK faced a brief and shallow recession, defined as two consecutive quarters of declining economic activity.
Gross domestic product a key indicator of all economic activities by companies, governments, and individuals, expanded during the latest quarter but remained flat in June. Although the services sector contributed to economic expansion over the three months, it became a hindrance in June due to the impact of strike action by junior doctors. NHS England reported that nearly 62,000 appointments were canceled between June 27 and July 2 due to the industrial action.
Economists have expressed concerns about the potential slowdown in growth in the latter half of 2024. Anna Leach, chief economist at the Institute of Directors, noted that businesses have reported modest activity during the summer months, likely influenced by persistently high-interest rates. Earlier this month, the Bank of England reduced interest rates to 5%, marking the first cut in four years.
"The government's challenge is to significantly boost the UK's economic growth out of its current slump," said Leach. "This requires a commitment to long-term infrastructure investment as outlined in the government's manifesto."
Economic issues played a crucial role in the recent general election, where Labour secured a landslide victory after 14 years of Conservative rule. Prime Minister Sir Keir Starmer has vowed to "take the brakes off Britain" and announced plans in the King’s Speech to reform the planning system, making it easier to build houses and infrastructure. Chancellor Rachel Reeves acknowledged the significant challenges facing the new government, which inherited an economy characterized by over a decade of low growth.
Shadow Chancellor Jeremy Hunt responded to the GDP figures, stating, "These numbers further demonstrate that Labour has inherited a growing and resilient economy."
The manufacturing sector experienced mixed performance in the three months leading up to June, with an overall decline during the quarter but some growth in June. Matthew Knight, the commercial manager at RNA, a Birmingham based firm specializing in automation equipment, reported that business has been strong, with the ability to sell into various countries. Knight suggested that falling interest rates might have contributed to the positive business outlook, as many customers finance the equipment RNA manufactures.
The ONS data also revealed a 0.1% decline in the construction sector's output between April and June, primarily due to a decrease in new building projects, although repair and maintenance work saw an uptick. The ONS noted that the rate of decline in the sector is slowing, but a Bank of England survey indicated that improving sentiment may not translate into increased activity until later in the year. The construction sector could see a boost if the Bank of England decides to cut interest rates again this year.
Recent inflation data showed an increase to 2.2% in the year to July, slightly above the Bank of England's 2% target. However, inflation in the services sector, which the Bank considers when setting interest rates, has continued to ease. Capital Economics predicted that despite the recent strength in services sector activity, further declines in services inflation are expected. They forecast two additional interest rate cuts by the Bank of England this year, bringing rates down to 4.5%.
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