Revisions mean UK economy no longer "looking like G7's laggard"

(Alliance News) - The UK may no longer be the sick man of the G7, according to Friday's economic data, but a period of "sluggish" gross domestic product growth may persist.

According to a second estimate from the Office for National Statistics, UK gross domestic product increased 0.2% against the prior quarter in second quarter of 2023. This was unchanged from an earlier estimate.

Meanwhile, GDP in the first quarter of the year was upwardly revised to a quarter-on-quarter increase of 0.3%, from a previous estimate of a 0.1% increase.

The UK economy is 1.8% higher than its pre-pandemic level.

"Revisions leave the UK no longer looking like the G7's laggard," Pantheon Macroeconomics analyst Samuel Tombs commented.

"For now, that means the UK no longer is the G7's straggler; GDP in Germany in Q2 is currently estimated to have exceeded its Q4 2019 average by just 0.2%. Nonetheless, a stable picture might take some time to emerge, given that statistical authorities in other countries are revising their data too."

Quilter Cheviot analyst Richard Carter said the UK data had "bright spots", but the outlook for the economy is still far from rosy.

Carter explained: "Given the economic hit that was experienced from the various bank holidays in the second quarter, including the coronation of King Charles, the government will be pleased to see economic growth unrevised at 0.2%. Indeed, the first quarter also saw an upwards revision to 0.3%, highlighting that while economic growth is challenging, it isn't quite non-existent for the UK. We are also seeing shoots that the cost of living crisis may be easing for households. While expenses are still elevated compared to pre-pandemic periods, disposable incomes are beginning to move ahead, bringing relief to many households who will have struggled over the winter months and where excess savings from the pandemic have dried up.

"However, given the speed of interest rate rises and the cumulative effect of the cost of living crisis, it may just be a case of the pain being delayed, with 2024 looking more challenging. The BoE has an incredibly difficult job to do, and with next year likely to see a general election at the same time, they won't want to overcorrect and tip the balance of power one way or another. With rates expected to say higher for longer and no sign of when to expect the first cut to rates, consumers will continue to be buffeted by the economic headwinds. The economy may be holding up just now, but it is asking a lot for to continue to do so for quite so long."

The data helped boost the FTSE 100, after a tricky week. The blue-chip index was up 0.7% in afternoon dealings. That good feeling may be short-lived, however.

AJ Bell analyst Russ Mould commented: "The economy is expected to be sluggish going into 2024, particularly if inflation remains sticky and interest rates stay higher for longer. However, markets have been worried about a recession so positive revisions to GDP estimates, even small ones, give hope that we could avoid the economy going into a big downturn. This shift in sentiment provided support to UK stocks, with retailers, engineers and housebuilders among the sectors in demand. The key question is how long this positive momentum can last.

"While the Bank of England might have finished its rate-rise cycle, it feels too early to be talking about a rate cut, particularly if the economy is showing signs of resilience. And without confidence over a rate cut, many stocks might end up trading sideways."

By Eric Cunha, Alliance News news editor

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