UK economy grows faster than expected in June
The UK economy grew 0.4 per cent in June, official data has shown, in an unexpected turnaround following months of tariff and tax uncertainty.
In the second quarter, GDP rose by 0.3 per cent after declining in both April and May.
The Office for National Statistics (ONS) said the UK services sector, which makes up over 80 per cent of the UK’s output, expanded by 0.4 per cent in the second quarter, while a fall in production weighed on growth.
Construction enjoyed 1.2 per cent growth in the second quarter.
A Bloomberg poll of economists predicted GDP to rise by 0.1 per cent prior to the official release on Thursday morning.
“Growth slowed in the second quarter after a strong start to the year, ” said Liz McKeown, director of economic statistics at the ONS.
“The economy was weak across April and May, with some activity having been brought forward to February and March ahead of stamp duty and tariff changes, but then recovered strongly in June.”
Chancellor Rachel Reeves said the economic figures were “positive” as the UK there was “continued growth” after an early 0.7 per cent surge in the first quarter.
“I know that the British economy has the key ingredients for success but has felt stuck for too long,” Reeves said.
“We’re investing to rebuild our national infrastructure, cutting back on red tape to get Britain building again and boosting the national minimum wage to make work pay. There’s more to do and today’s figures only fuel my ambition to deliver on our plan for change.”
Shadow chancellor Mel Stride said: “Any economic growth is welcome, but growth is slowing with business leaders saying that all indicators are flashing red.”
“The Chancellor’s economic vandalism is clear.”
UK economy on shaky ground
The latest set of results will not endear most Treasury officials and City analysts, who are hoping to see greater levels of spending across the country.
The Bank of England will also look at the new data on GDP with some hesitation, with hopes that five interest rate cuts over the last year could have some effect on boosting investment and output.
Its latest monetary policy report blamed fiscal policies for dampening growth.
Most analysts believe the UK will grow by around one per cent this year, although there is some debate on how it will perform next year.
The Office for Budget Responsibility (OBR) is widely expected to say that higher tariffs on the UK than before President Trump’s election will knock higher growth hopes off course.
But attention is quickly turning to possible tax hikes in the autumn, with some analysts claiming Reeves faces a black hole worth more than £20bn.
The National Institute of Economic and Social Research (NIESR) said Reeves could be forced to raise taxes by as much as £50bn in the autumn.
Reports suggest the Chancellor could target dividends, pension pots and inheritance, given government pledges not to raise income tax, VAT or national insurance.
The introduction of a wealth tax, which several Labour backbenchers support, was dismissed as “daft” by the business secretary Jonathan Reynolds.
Industry groups are urging the Chancellor to avoid adding costs to businesses up and down the country.
“Policy uncertainty in the run-up to the Autumn Budget risks tipping the balance,” Ben Jones, lead economist at the Confederation of British Industry (CBI) said.
“With the business tax burden already at a 25-year high, the government must chart a steadier course by ruling out further tax rises and prioritising policies that can quickly lift investment and productivity.”
The other option for Reeves could be to cut spending, but that would represent another U-turn for the government after it pledged to increase expenditure by £190bn over the next five years.