UK economy exceeds expectations with robust growth in June

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【Summary】The UK economy grew faster than expected in Q2 2023, with GDP increasing by 0.2% due to a recovery in car manufacturing and a strong June. Economists had predicted no growth for the quarter. However, the economy is still 0.2% smaller than pre-pandemic levels. The increase in output was mainly driven by a 1.6% rise in manufacturing, particularly in the production of transport equipment. Analysts caution that the impact of the coronation bank holiday may have artificially inflated the figures.

FutureCar Staff Aug 14, 2023 9:50 AM PT

UK economy exceeds expectations with robust growth in June

The UK economy exceeded expectations in the second quarter of this year, thanks to a recovery in car manufacturing and a strong performance in June. According to the Office for National Statistics (ONS), UK GDP increased by 0.2% from April to June, marking the best quarterly reading in over a year. This data surprised economists, who had predicted no growth during this period. The strong performance in June, with a 0.5% increase in output, contributed to the overall growth. However, despite this positive news, the UK economy is still 0.2% smaller than it was before the pandemic.

The cost of living crisis over the past 18 months has been the weakest period outside of a recession in 65 years, according to the Resolution Foundation thinktank. Despite avoiding a technical recession, the UK economy has not fully recovered from the impact of the pandemic. Darren Morgan, an ONS director, highlighted the strong growth in manufacturing, particularly in the car and pharmaceutical industries. Services also had a strong month, with publishing, car sales, and legal services performing well. Construction, pubs, and restaurants also experienced growth, supported by the hot weather.

The increase in output in the second quarter was mainly driven by a 1.6% increase in manufacturing, with falling material prices relieving some pressure on manufacturers. The Society of Motor Manufacturers and Traders reported a 16.2% increase in car manufacturing compared to the same month last year. Car manufacturers have faced challenges during the pandemic due to chip shortages, but the situation has improved in 2023, allowing production to recover. However, some analysts caution that the June acceleration in output may present an overly positive picture of the UK economy.

The cost of living crisis has been driven by high inflation, reaching 11.1% in October, the highest in four decades. Although inflation has gradually fallen, the Bank of England has raised interest rates to combat inflation, putting additional pressure on households, especially those with fixed-rate mortgages. The weak growth of the UK economy, with an expansion of only 0.4% since the beginning of 2022, has contributed to the ongoing cost of living crisis. Chancellor Jeremy Hunt believes that the actions taken to fight inflation will lay the foundation for future economic growth. On the other hand, Labour's Rachel Reeves argues that economic mismanagement under the Conservatives has left Britain in a low-growth, high-tax cycle.