UK Economy's Robust Growth in Q2 2024
The UK economy demonstrated resilience with a 0.6% growth in Gross Domestic Product (GDP) during the second quarter of 2024. This growth follows a 0.7% expansion in the first quarter, marking the fastest pace in over two years, according to the Office for National Statistics. However, the momentum slowed as the country approached the latter half of 2024.
Factors Influencing Growth
Despite the strong start, June's monthly output growth stagnated, attributed to adverse weather impacting retail sales and a doctor's strike leading to a 1.5% drop in healthcare activity. Economist Thomas Pugh from RSM UK highlighted that political uncertainties preceding the July 4 election might have dampened growth in June.
Future Growth Concerns
Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, forecasts a deceleration in quarterly growth due to stubbornly high interest rates, even after a recent Bank of England (BoE) cut. Wage growth is expected to slow, alongside enduring productivity challenges.
Bank of England's Forecast
The BoE adjusted its annual growth forecast for 2024 to 1.25%, up from 0.5%, citing a stronger-than-anticipated first half of the year. However, the outlook for the rest of the year is less optimistic, with predicted growth slowing to 0.4% in Q3 and 0.2% in the final quarter.
Long-term Economic Challenges
Since the COVID-19 pandemic, the UK has seen sluggish growth, expanding just 2.3% from Q4 2019 to Q2 2024, placing it ahead of only Germany among major economies. Output per head has increased in recent quarters but remains 0.8% below pre-pandemic levels, partly due to a growing population from immigration.
Government's Growth Targets
Prime Minister Keir Starmer aims for a GDP growth target of 2.5% annually, a rate not consistently achieved since before the 2008 financial crisis. Finance Minister Rachel Reeves seeks to position the UK for the fastest per capita GDP growth among the G7 nations over two years, acknowledging the challenges in enhancing economic fundamentals.
Business Investment and Productivity
Investment in businesses remains a long-standing issue, exacerbated by Brexit uncertainties. Business investment in Q2 2024 was 1.1% lower compared to the previous year. This trend has impacted productivity and living standards, reflecting wider challenges faced across advanced economies.
