Britain's economy expanded at a slower pace than initially estimated in the second quarter, but there were encouraging signs from household finances and business investment that could support Finance Minister Rachel Reeves as she prepares for next month's budget.
According to the Office for National Statistics, economic output grew by 0.5 per cent from April to June, slightly below the preliminary estimate of 0.6 per cent growth in gross domestic product. Economists polled by Reuters had anticipated the 0.6 per cent rise to be confirmed.
The household saving ratio increased to 10.0 per cent from 8.9 per cent in the first quarter of 2024. Sandra Horsfield, an economist at Investec, noted that the rise in savings, coupled with wage growth outpacing inflation and a robust job market, suggests households are likely to remain confident about future income prospects.
"In essence, there is sufficient momentum to sustain consumer spending even as the boost from above-inflation wage gains diminishes," Horsfield stated.
Gross domestic product per capita rose for the second consecutive quarter, albeit at a slower rate than in the first quarter. Prime Minister Keir Starmer, whose Labour Party took power in July, is aiming to accelerate economic growth. Reeves has hinted that some taxes may increase in her first budget on October 30, a move that recent surveys suggest has dampened consumer and business sentiment.
However, Reeves has also suggested she might ease public debt rules, potentially allowing for more borrowing that could stimulate investment and overall economic growth. The Bank of England forecasts a slowdown in economic growth to 0.3 per cent in the third quarter but anticipates that interest rate cuts and lower inflation will bolster growth later this year.
Despite the positive indicators, Britain remains a post-Covid laggard. Business investment rose by 1.4 per cent in the second quarter, marking a third consecutive gain. Overall, Britain's GDP growth outpaced the eurozone's 0.2 per cent expansion.
Last week, the OECD revised its forecasts for British growth, projecting 1.1 per cent in 2024 and 1.2 per cent in 2025, up from previous estimates of 0.4 per cent and 1.0 per cent. However, Britain's recovery from the Covid-19 pandemic remains sluggish, with its economy 2.9 per cent larger than in late 2019, outperforming only Germany among G7 countries.
Separate data revealed that British house prices in September rose by the most since November 2022, up 3.2 per cent year-on-year, while mortgage approvals in August reached their highest level in two years.
The ONS revised its estimate for 2023 economic growth to 0.3 per cent, slightly stronger than the previous estimate of 0.1 per cent. Additionally, Britain's current account deficit widened to £28.4 billion ($38.0 billion) in the second quarter, equivalent to 4.0 per cent of GDP, though this was lower than economists' expectations.
