UK receives raft of upgrades after beating expectations again

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The OECD has downgraded its outlook for the UK economy.
The OECD has downgraded its outlook for the UK economy.

Economic forecasters have been rushing to upgrade the UK’s outlook after the economy surpassed expectations again in May.

Figures out last week showed that the economy grew 0.4 per cent after stagnating in April. This was double the rate of growth expected by experts.

Gross domestic product (GDP) is now 0.7 per cent higher than it was in June last year, just before the start of the shallow recession.

Following the figures, a host of City forecasters and investment banks upped their guidance for the coming months.

Sanjay Raja, UK economist at Deutsche Bank, now predicts a 0.6 per cent expansion across the second quarter, up from a forecast of 0.3 per cent at the beginning of the year. Barclays also expect a 0.6 per cent expansion.

Goldman Sachs and Capital Economics, meanwhile, both think that the UK could match its performance in the first quarter of the year, when it grew 0.7 per cent.

Looking across 2024 as a whole, Goldman and Barclays both now think that the UK could grow 1.1 per cent while Deutsche projects a 1.2 per cent expansion.

These forecasts are much more optimistic than the Bank of England, who projected a 0.4 per cent annual expansion back in May.

Growth has also exceeded the Office for Budget Responsibility’s traditionally optimistic forecasts. The fiscal watchdog pencilled in annual growth of 0.8 per cent in March.

Looking forward, however, most economists think quarterly growth will slow. “Recent growth feels too good to be true,” Rob Wood, chief UK economist at Pantheon Macroeconomics said.

Wood pointed to recent business surveys which have shown a slowing in activity. S&P’s services purchasing managers’ index, for example, fell to a seven month low in June.

Economists at Barclays agreed that momentum would slow. “We think this first half performance partly represents an economic bounce following last year’s recession and some temporary seasonal influences, thus overstating underlying growth,” they said.

However, they pointed to evidence that winning an international football tournament could help generate further economic momentum.

“The academic literature suggests there could be a positive boost to GDP should England win the European football championship on Sunday,” they said.