∫Behind the Numbers: An unusual holiday and labor problems.
The data, released by the Office for National Statistics on Friday, showed strongest growth in production and construction. There was also growth in household and government spending, although international trade fell.
The data beat the Bank of England’s forecast last week for 0.1 percent growth, and some economists had predicted a quarter of no growth. Weighing on their estimates was an extra national holiday in May for the coronation of King Charles. And labor strife continued through the quarter, diminishing economic activity.
Background: An economy that’s growing, but barely.
The British economy has been sputtering for the past year. It has avoided a recession, but it has not grown much, either. On a quarterly basis, economic output in Britain remains lower than it was before the Covid pandemic in early 2020.
Part of the problem is that Britain remains saddled by high inflation, which has spurred an aggressive campaign of interest rate increases by the Bank of England. Last week, the bank’s policymakers raised rates for the 14th consecutive meeting.
Inflation has been coming down, to an annual rate of 7.9 percent in June from 11.1 percent last fall, but the central bank is concerned that price pressures have become embedded in the economy, such as via wage increases.
At its last meeting, policymakers said they would make sure interest rates were “sufficiently restrictive for sufficiently long” to push inflation down to their 2 percent target level.
Comparisons: Growth in Europe and United States
In Europe, the 20 countries that use the euro currency haven’t fared much better in terms of economic growth. The eurozone expanded 0.3 percent in the second quarter, after stalling earlier in the year and shrinking 0.1 percent late last year.
Growth has been more robust in the United States, expanding more than 0.5 percent in the past two quarters.
Quotable: “Overly pessimistic expectations.”
Analysts at Berenberg Economics noted that while “the U.K. has developed a reputation as a bit of a basket case among major advanced economies since voting for Brexit,” the British economy has consistently beat “overly pessimistic expectations.” After last year’s political turbulence, when financial markets rejected the polices of the prime minister at the time, Liz Truss, “economic recovery combined with easing inflation pressures can underpin financial markets turning more positive (or at least less negative) on the U.K.,” the analysts wrote.
What’s Next: More of the same.
The broad consensus among forecasters is for more slow growth in Britain over the coming year or two, and perhaps a risk of contraction, as the central bank continues raising interest rates to reduce inflation.
In its forecast last week, the Bank of England said: “Underlying quarterly G.D.P. growth has been around 0.2 percent during the first half of this year. Bank staff expect a similar growth rate in the near term, reflecting more resilient household income and retail sales volumes.”
On Thursday, the National Institute of Economic and Social Research, a think tank in London, warned of “five years of lost economic growth,” and said the heaviest burden would fall on people with low incomes.
“Low economic growth and stagnant productivity is increasing the financial vulnerability of households in the bottom half of the income distribution and the incidence of destitution at the poorest end,” the report said.
A bright spot: Goldman Sachs economists noted that the data showed that economic output in June was 0.8 percent above its prepandemic level, in February 2020.
