British Economy Sees Modest Growth: Positive Signs in Household Finances and Investment
Britain's economy expanded by 0.5% in the second quarter, slower than initially estimated. Despite this, positive signs in household finances and business investment offer optimism. The saving ratio and house prices rose, while the OECD revised up growth forecasts. The economy remains one of the slowest to recover post-COVID.
Britain's economy grew more slowly than previously thought in the second quarter, but there were positive signs from household finances and business investment that could encourage finance minister Rachel Reeves as she prepares next month's budget. Economic output expanded by 0.5% in the April-to-June period, the Office for National Statistics said on Monday.
The reading was slightly weaker than a preliminary estimate for 0.6% growth in gross domestic product. Economists polled by Reuters had expected the 0.6% rise to be confirmed. The household saving ratio increased to 10.0% from 8.9% in the first three months of 2024.
Sandra Horsfield, an economist with Investec, said the savings figures and growth in wages outpacing inflation, coupled with a strong jobs market, suggest households will remain confident in their income prospects. "In other words, there is enough fuel in the tank to keep consumer spending moving up even when the boost from above-inflation wage gains eases off," Horsfield said.
Gross domestic product per head rose for a second quarter in a row, albeit more slowly than in the first quarter. Prime Minister Keir Starmer, whose Labour Party won power in July, is seeking to accelerate economic growth.
Reeves has suggested some taxes will rise in her first budget on Oct. 30. Recent surveys have shown declines in consumer and business sentiment partly due to budget concerns. She has also hinted at relaxing public debt rules, which could lead to more borrowing and boost investment and the economy.
The Bank of England has forecast economic growth to slow to 0.3% in the third quarter but expects the interest rate cut in August, more anticipated cuts, and lower inflation to boost growth later this year.
Data showed a jump in business investment, rising by 1.4% in the second quarter for a third consecutive gain. Overall, Britain's GDP growth was stronger than the euro zone's 0.2% expansion.
Last week, the OECD improved its growth forecasts for Britain to 1.1% in 2024 and 1.2% in 2025, up from earlier predictions. However, Britain remains one of the slowest countries to recover from COVID-19. Its economy is 2.9% bigger than in late 2019, with Germany faring worse among G7 nations.
Separate data on Monday showed that British house prices in September rose by 3.2% compared with last year, the highest since November 2022. BoE figures showed mortgage approvals in August were the highest in two years.
The ONS revised the country's economic growth for 2023 to 0.3%, stronger than the previous estimate of 0.1%. Britain's current account deficit rose sharply to 28.4 billion pounds ($38.0 billion) in the second quarter, equivalent to 4.0% of GDP, but was lower than expected by economists in the Reuters poll.
(With inputs from agencies.)