UK revises down economic growth but signs of strength remain

Britain’s economy grew more slowly than previously thought in the second quarter, but there were positive signs from household finances and business investment that could encourage finance minister Rachel Reeves as she prepares next month’s budget.

Economic output expanded by 0.5 per cent in the April-to-June period, the Office for National Statistics said on Monday.

The reading was slightly weaker than a preliminary estimate for 0.6 per cent growth in gross domestic product. Economists polled by Reuters had expected the 0.6 per cent rise to be confirmed.

The household saving ratio increased to 10.0 per cent from 8.9 per cent in the first three months of 2024.

Sandra Horsfield, an economist with Investec, said the savings figures as well as growth in wages that is outstripping inflation and a still-strong jobs market meant households were likely to remain confident about future income prospects.

“In other words, there is enough fuel in the tank to keep consumer spending moving up even when the boost from above-inflation wage gains eases off,” Horsfield said.

Gross domestic product per head rose for a second quarter in a row, albeit more slowly than in the first quarter.

Prime Minister Keir Starmer, whose Labour Party won power in July, is seeking to speed up economic growth.

Reeves has suggested some taxes will rise in her first budget on October 30. Recent surveys have shown falls in consumer and business sentiment partly due to concerns about the budget.

But she has also hinted that she might relax rules on public debt, paving the way for more borrowing which could boost investment and the overall economy.

The Bank of England has forecast economic growth will slow to 0.3 per cent in the third quarter but it has said the interest rate cut in August and the expectation of more cuts, plus lower inflation, are likely to boost growth later this year.

Still a post-Covid laggard

It also said Britain’s current account deficit rose sharply to £28.4 billion ($38.0 billion) in the second quarter, equivalent to 4.0 per cent of GDP but lower than expected by economists in the Reuters poll.

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