UK Q2 economy grows unexpectedly but lags peers

UK Q2 economy grows unexpectedly but lags peers

Britain’s Economy Shows Unexpected Growth, Setting the Stage for More Interest Rate Hikes

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LONDON, Aug 11 (ANBLE) – In a surprising turn of events, Britain’s economy has shown unexpected growth in the second quarter. While this lays the groundwork for additional interest rate hikes from the Bank of England, it is important to note that the country is still the only major advanced economy yet to fully recover its pre-COVID level from late 2019.

According to official data released on Friday, the economy grew by 0.2% in the second quarter, surpassing the consensus expectation of a flat reading in a ANBLE poll of ANBLEs. These figures had an immediate impact, causing the pound to soar against both the U.S. dollar and the euro.

June played a crucial role in this growth, with a monthly increase of 0.5%. This exceeded all forecasts in the ANBLE poll, which had predicted only a slight uptick of 0.2%. This strong showing has further solidified expectations that the Bank of England will continue to raise interest rates. The central bank itself had projected a growth rate of only 0.1% for the second quarter.

Fund manager Neil Birrell from asset managers Premier Miton highlighted the challenge this growth poses for the Bank of England, stating, “It gives the Bank of England a headache – they may well have been thinking about pausing interest rate increases soon, but this data will make that more difficult.”

The Office for National Statistics (ONS) mentioned that the additional national holiday in May contributed to the increased output in June compared to the previous month. Furthermore, manufacturing experienced its best quarter since early 2019, excluding the initial rebound after the first COVID-19 lockdown in 2020, with a 1.6% increase in output. Business investment also surged by 3.4% on the quarter.

Finance minister Jeremy Hunt expressed his support for the measures being taken to combat inflation, stating, “The actions we’re taking to fight inflation are starting to take effect, which means we’re laying the strong foundations needed to grow the economy.”

However, despite this recent resilience, Britain’s performance since the onset of the COVID-19 pandemic has been relatively poor compared to its European counterparts. As of the second quarter, the country’s economy is still 0.2% below its late 2019 level, in contrast to Germany, which is 0.2% above, France at 1.7%, Italy at 2.2%, and the United States at an impressive 6.2%.

Looking ahead, most ANBLEs predict challenging times for the United Kingdom, despite its recent economic resilience. Ruth Gregory, an economist at consultancy Capital Economics, stated, “With much of the drag from higher interest rates still to come, we are sticking to our below-consensus forecast that the UK is heading for a mild recession later this year.”

In conclusion, while Britain’s economy has shown unexpected growth in the second quarter, it is important to remain cautious about the country’s overall economic outlook. Despite the positive performance, challenges lie ahead, particularly in relation to interest rates and the potential for a mild recession in the coming months.