UK economy confounds predictions of recession after surprise growth

(Alliance News) - The UK economy fared better than expected in the second-quarter of 2023, registering quarter-on-quarter growth of 0.2%, but analysts cautioned this was a story of "resilience rather than dynamism".

According to the Office for National Statistics on Friday, the UK economy grew 0.2% quarter-on-quarter in the three months to June, following a 0.1% climb in the first-quarter.

It easily topped the FXStreet-cited consensus, which had forecast the UK economy to flatline.

Year-on-year, the UK economy expanded 0.4%, beating expectations of a 0.2% climb, which was also the pace of annual growth in the first-quarter.

"Before we roll out the garlands it is worth observing the UK remains one of the few major economies to reach its pre-pandemic size. This is a story of resilience rather than dynamism," said Russ Mould, investment director at AJ Bell.

In June alone, there was chunky GDP growth beat. The economy rose 0.5%, shaking off the impact of industrial action, after an unrevised 0.1% decline in May and a 0.2% rise in April.

An expansion of 0.2% was expected for June, according to FXStreet.

Hot weather helped pubs and restaurants in June, but a drizzly and cooler July may well dampen this trend when the next monthly GDP figures are announced in September.

"The UK economy continues to confound predictions of a recession for now. However, the words 'for now' are doing plenty of heavy lifting," AJ Bell's Mould said.

Mould considered that the durability of the UK may be a double-edged sword as it could lead to the Bank of England taking a hard line on interest rates moving forward.

"On the other hand, a lower than anticipated inflation number next week could build confidence in a Goldilocks scenario where the economy is blowing neither too hot or too cold and the Bank can start to dial back the pressure on rates and avoid inflicting much more pain without risking losing control of prices again," he continued.

Francesco Pesole at ING, meanwhile, argued that Friday's figures would have "limited" implications for the Bank of England, given the numbers were "not far" from its forecasts.

"The focus is firmly on services inflation and wage growth, which are both out next week," he added.

The latest employment figures for the UK will be released on Tuesday at 0700 BST, with inflation figures following a day later at the same time.

By Heather Rydings, Alliance News senior economics reporter

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