UK Economy Grows 0.6% in Q2 2024, Continuing Post-Recession Recovery

The UK economy increased by 0.6% between April and June, as it continued to recover from last year’s recession.

The latest figure was in line with expectations, following a 0.7% growth in the first three months of the year.

The services sector drove growth, particularly in the IT industry, legal services, and scientific research.

Services are the largest contributor to the UK economy, considerably outpacing manufacturing and construction, all of which had output declines between April and June.

“The UK economy has now grown strongly for two quarters, following the weakness we saw in the second half of last year,” said Liz McKeown, director of economic statistics at the Office for National Statistics, which published the findings.

Last year, the UK economy experienced a modest and brief recession.

A recession occurs when economic activity falls for two consecutive three-month periods (or quarters).

While gross domestic product (GDP) – a crucial measure of all economic activity by businesses, governments, and individuals – grew in the most recent quarter, growth remained flat in June.

While the services sector contributed to economic growth over three months, it was a drag on performance in June alone.

Junior physicians went on strike, which impacted growth. Between June 27 and July 2, NHS England stated that 61,989 appointments were cancelled due to junior physicians’ strike action.

Economists also cautioned that growth could decrease in the second half of 2024.

According to Anna Leach, chief economist of the Institute of Directors, firms are reporting moderate activity over the summer months, which is “no doubt affected by still high interest rates”.

Earlier in August, the Bank of England reduced interest rates to 5%, its first decrease in four years.

“The challenge for government is to firmly lift the UK’s growth performance out of the doldrums,” Ms. Leach added.

“There’re no quick fixes here: we’ll need the government to follow-through on its manifesto commitments to set and stick with long-term infrastructure investment plans.”

The economy was a major battleground in the general election, which Labour won by a landslide after 14 years of Conservative control.

In the King’s Speech, Prime Minister Sir Keir Starmer pledged to “take the brakes off Britain” and unveiled proposals, including changes to the planning system to facilitate infrastructure and housing construction.

Rachel Reeves, the chancellor, commented: “The new government is under no illusion as to the scale of the challenge we have inherited after more than a decade of low economic growth.”

However, shadow chancellor Jeremy Hunt stated that the GDP results “are yet further proof that Labour have inherited a growing and resilient economy”.

Manufacturing activity was uneven in the three months leading up to June. While it decreased generally over the quarter, there was growth in June.

Matthew Knight, commercial manager of RNA, a Birmingham-based firm that designs and manufactures automation technology, told the BBC that “business is very good, we’re very busy.” We can sell into multiple countries; if one area or country is not performing well, we can sell into another.”

He mentioned that business is picking up. “Interest rates falling might have something to do with it, because a lot of customers finance the equipment RNA makes, rather than purchasing it direct,” he told me.

The ONS statistics also showed that output from the construction industry fell by 0.1% between April and June as new construction fell while repair and maintenance increased.

The ONS stated that the rate of decrease in the industry was slowing, but a Bank of England survey of businesses found that “any improving sentiment is not expected to translate into activity until later this year”.

Construction could benefit if the Bank lowers interest rates again this year.

This week, new inflation data revealed that the rate rose to 2.2% in the year to July.

This is higher than the Bank of England‘s 2% inflation target. However, inflation in the services sector, which the Bank considers when setting interest rates, has continued to decrease.

According to Capital Economics, while the services sector expanded between April and June, “recent strength of activity won’t prevent further falls in services inflation”.

It stated that it expects the Bank to decrease interest rates twice more this year, to 4.5%.