UK economy grew less than expected this spring

Growth Lower Than Initial Estimates

The UK’s economic growth between April and June was revised down from initial estimates, according to official data. The economy grew by 0.5%, lower than the previously reported 0.6%, as declines in the manufacturing and construction sectors were more pronounced than originally thought.

Labour Government Prepares for First Budget

This update comes as the Labour government, which has prioritised economic growth, prepares to unveil its first Budget in four weeks. Labour has faced criticism for its cautious economic outlook, with Prime Minister Sir Keir Starmer warning of a “painful” Budget. However, Chancellor Rachel Reeves recently sought to offer a more optimistic perspective, stating that Britain’s “best days lie ahead.”

Bank of England Unlikely to React to Revised Growth

Paul Dales, chief UK economist at Capital Economics, commented that the revised growth figure “shouldn’t cause the Bank of England too much concern about the economy losing momentum.” These new growth figures are unlikely to significantly affect the forecasts from the Office for Budget Responsibility, which is currently preparing its projections for the upcoming Budget.

Declines in Manufacturing and Construction

The Office for National Statistics (ONS), which released the data, reported that production in the transport and related equipment sector fell by 3.1% between April and June, a sharper decline than the initially estimated 0.7%. The ONS suggested this drop may be linked to manufacturers preparing for the transition to electric vehicle production.

Construction also saw a downturn, largely due to the continued fall in new home building, although the ONS noted some signs of improvement.

Interest Rate Outlook

While the slight reduction in growth is not alarming, Mr. Dales noted that it could reinforce the Bank of England’s view that further interest rate cuts might be necessary. In August, the Bank lowered rates to 5% from 5.25%, marking its first rate cut in nearly four years.

Source: BBC