Revised Data Shows Slower Growth
The UK’s economy expanded at a slower pace than initially anticipated in the second quarter of 2024, but brighter prospects for household finances and signs of future improvement have sparked optimism ahead of the government’s upcoming budget.
ONS Downgrades Growth Estimate
Revised data from the Office for National Statistics (ONS) revealed that the economy grew by 0.5% between April and June, a slight dip from the preliminary estimate of 0.6%. Economists had forecast a similar 0.6% increase, but the latest figures fell short of these expectations.
Economic Outlook Shows Signs of Improvement
Despite the underwhelming growth rate, analysts see reasons to be hopeful. “The UK’s GDP grew by slightly less than originally estimated in the second quarter, but overall the economic outlook has improved considerably since the start of the year,” said Gora Suri, an economist at PwC. Suri pointed to factors such as inflation returning to the Bank of England’s 2% target, interest rates beginning to fall, and greater political stability following the July general election.
Household Savings on the Rise
Notably, household savings increased during the second quarter, with the savings ratio climbing to 10%, up from 8.9% in the first quarter of the year. Meanwhile, gross domestic product per head also saw its second consecutive quarter of growth, although at a slower rate than in the previous quarter.
Starmer Government Focuses on Growth
Prime Minister Keir Starmer, who led the Labour Party to victory in the summer election, has placed economic growth at the forefront of his agenda. As his administration prepares for its first annual budget next month, Chancellor Rachel Reeves has hinted at the possibility of tax increases. Reeves, however, has also signaled potential changes to fiscal rules on public debt, which could open the door for more borrowing and increased investment aimed at stimulating growth.
Bank of England’s Forecast for Slower Growth
The Bank of England has cautioned that growth is likely to decelerate to 0.3% in the third quarter, but remains optimistic that recent monetary policy changes, including an interest rate cut in August and the expectation of further reductions, will spur economic activity later this year.
Annual Growth and Revised Full-Year Forecast
On an annual basis, the economy grew by 0.7% compared to the same period in 2023, although this too was below economists’ projections of 0.9%. Meanwhile, sterling remained largely unchanged against the U.S. dollar following the release of the data.
The ONS also updated its full-year growth forecast for 2023, revising the figure upward from 0.1% to 0.3%. Despite the upward revision, the UK economy still experienced two consecutive quarters of contraction in the latter half of 2023, confirming a technical recession during that period.
Housing Market Shows Positive Signs
In a separate report, British house prices in September recorded their largest annual rise since November 2022, with prices climbing 3.2% compared to the same month last year, offering a glimmer of positive news for homeowners amid broader economic uncertainty.
Looking Ahead to the Budget
As the country approaches the next fiscal milestone, all eyes will be on how the government balances growth ambitions with fiscal prudence in the months to come.
