The Office for National Statistics (ONS) has revised UK gross domestic product (GDP) growth for the second quarter up to 0.5%, from a previous estimate of 0.4%. The revision means the UK economy grew at the same pace as the US in the first six months of the year, with GDP rising 0.6% in the first quarter.
Household income per head grew 1.1% between January and June, a stronger pace than previously estimated. The ONS said the increase followed a rise in economic growth that illustrated the resilience of the UK economy since the outbreak of hostilities in the Middle East more than seven months ago.
Savings rate and business investment rise
Households were able to put some of the income rise into savings, with the savings rate increasing from 8.6% in the first three months to 8.8% in the three months to the end of June.
Business investment increased by 1.8% in the second quarter and was estimated to be 5.2% higher compared with the same quarter a year ago.
Market reaction and analyst views
Thomas Watts, a fund manager at the private bank Julius Baer, said the figures were “yet more positive news for the new administration” after previous data had shown the resilience of the UK economy since the start of the US-Israel war on Iran in February.
Kathleen Brooks, the research director at XTB, said the markets were in an “upbeat mood” after the revisions, which “suggest that the UK economy was resilient to the effects of the Iran war, the energy price surge and the rise in borrowing costs”. She added: “Stronger services growth and rising household spending boosted the figure. This is fairly typical of the UK economy, which is service based; the real surprise was the strength of business investment and an improvement in the trade figures, which showed a boost in exports.”
Analysts said a “Burnham bounce” in confidence could have been a factor, as the Makerfield byelection announced in May paved the way for the former mayor of Manchester to become prime minister.
Currency and bond market impact
Sterling hit a six-week high against the euro and edged higher against the US dollar, up 0.4% to a one-week high of $1.3292. Against the euro, sterling was at its highest since mid-August, with the euro down nearly 0.3% at 85.43p.
UK government bond yields eased on the stronger economic data and lower global oil prices. Two-year UK bond yields were down 0.05 of a percentage point at 4.86%, while 10-year UK bond yields were four basis points lower at 5.356% on Wednesday.
Traders speculated that the UK’s strong growth rate may persuade the Bank of England that the economy is “running hot” and needs higher interest rates to calm it down, especially when inflation at 3.1% is above the central bank’s 2% target. Oil and gas prices have surged since the conflict first started, with Brent crude prices back above $100 a barrel after a ceasefire in the summer, though they have eased in recent days. The upgrade is a boost for the chancellor, John Healey, as he prepares to give his first budget next month.
