UK economy continues recovery from recession with GDP growth of 0.6%

Britain’s economy has extended its recovery from recession after recording growth of 0.6% in the three months to June, handing a boost to the chancellor, Rachel Reeves, in the run-up to the autumn budget.

Figures from the Office for National Statistics (ONS) show gross domestic product continued to grow in the second quarter, after a rise of 0.7% in the first three months of 2024. The reading matched the forecasts of City economists.

However, monthly GDP growth was flat in June as wet weather deterred shoppers from spending in what has been a washout summer for retailers.

Ben Jones, the lead economist at the Confederation of British Industry, said the figures showed the economy had “finally shaken off its slumber of recent years”, but warned there were still challenges to sustainably boosting Britain’s long-term growth rate.

“We think the quarterly data probably overstates the underlying momentum in the economy, with recent CBI surveys of activity remaining fairly subdued,” he said. “But firms nonetheless appear confident that the recovery will continue.”

According to the latest snapshot, service sector output increased by 0.8% in the second quarter, powered by scientific research and development. There was also strength in the IT, transport, law, architecture and engineering sectors.

Consumer-facing service output fell by 0.1%, reflecting a weaker period for purchases of physical goods amid the cost of living crisis and poor weather hitting retail sales. Manufacturing and construction output also fell.

The UK has grown at a faster pace this year than many forecasters predicted, in a development seized on by the shadow chancellor, Jeremy Hunt, as evidence that the previous government had helped the economy to turn a corner.

“Today’s figures are yet further proof that Labour have inherited a growing and resilient economy. The chancellor’s attempt to blame her economic inheritance on her decision to raise taxes – tax rises she had always planned – will not wash with the public,” he said.

The latest figures show the UK recorded the strongest growth in the G7 group of advanced economies over the past six months. The second-quarter growth rate of 0.6% compares with 0.3% in the eurozone, and 0.7% in the US.

However, it comes after a lacklustre performance over the past decade, and high living costs, elevated interest rates and faltering productivity gains are acting as a brake on momentum. The UK economy entered recession – defined as two consecutive quarters of falling GDP – in the second half of last year as households cut back on spending.

Reeves has said rebooting the economy is Labour’s number one priority, arguing that stronger growth will help to boost living standards and raise more tax revenue to repair battered public services. The chancellor will deliver an autumn budget on 30 October.

“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 and a £22bn black hole in the public finances,” she said.

“That is why we have made economic growth our national mission and we are taking the tough decisions now to fix the foundations, so we can rebuild Britain and make every part of the country better off.”

Experts said the recent strength in the economy would be unlikely to last. Earlier this month, the Bank of England raised its growth forecast from 0.5% to 1.25% for 2024, but warned of a weaker medium-term outlook as high interest rates hit activity. Figures released on Wednesday showed inflation rose by less than expected in July to 2.2%.

The continued strong GDP growth in the second quarter of the year may mean that the Bank delays interest rate cuts until past September, according to financial market bets.

The Bank is expected to leave rates unchanged at 5% when rate-setters meet next month, before making a 0.25%-point rate cut at the following meeting in November.

Much of the recent expansion has been driven by a growing population. The latest figures showed GDP per head, an important barometer of living standards, was 0.1% lower than a year earlier in the second quarter, and 0.8% below pre-pandemic levels.

Simon Pittaway, a senior economist at the Resolution Foundation, said: “Britain’s medium-term record is far less impressive, and has been driven by a growing population rather than rising productivity.

“Without a return to productivity growth, living standards will continue to stagnate and Britain will continue to fall behind its peers.”