UK economy grew faster-than-forecast in Q2

[LONDON] The UK economy fared better than expected in the second quarter, bringing some relief for Chancellor of the Exchequer Rachel Reeves but raising the bar to further interest-rate cuts from the Bank of England.

Gross domestic product rose 0.3 per cent, the Office for National Statistics said on Thursday (Aug 14), beating the 0.1 per cent forecast by both private-sector economists and the Bank of England. Output in June alone gained 0.4 per cent – double expectations – following modest declines in the previous two months. 

The figures suggest the economy held up during what was always expected to be a difficult period as businesses and consumers were hit by Reeves’ £26 billion (S$45.2 billion) payroll tax raid, inflation-busting hikes to regulated prices such as energy and increased taxes on home purchases, as well as US President Donald Trump’s tariffs. 

Growth of 0.7 per cent in the first quarter was artificially boosted by manufacturers trying to get ahead of US tariffs, though Prime Minister Keir Starmer repeatedly hailed Britain outperforming the other Group-of-Seven nations as evidence of the economy turning a corner.

The data also appear to further muddy the BOE’s decision over whether to carry on cutting interest rates from the current 4 per cent after statistics on Tuesday showed the economy has lost fewer jobs than initially thought since Reeves’ tax-raising budget last October. Traders are no longer fully pricing in a further reduction this year, and expect borrowing costs to settle at 3.5 per cent next year. BLOOMBERG