UK economy picks up pace in Q2 but post-pandemic progress remains slow

Today’s UK GDP figures suggest the economy grew more strongly than expected in Q2, notwithstanding fears of stagnation. Still, the UK’s economic performance since the pandemic has been lacklustre, to say the least.

The key details of the report can be summarised as follows:

• UK GDP grew by 0.2% in Q2 following growth of 0.1% in the previous quarter. Market expectations were centred on an unchanged GDP level. • On the output side, service sector activity rose by 0.1% q/q, production by 0.7% q/q and construction by 0.3% q/q. The economy’s expansion in other words was broadly based.
• On the expenditure side, the gain in GDP was driven by a 0.7% rise in household consumption after no growth in Q1. • Government spending rose by 3.1% in Q2 primarily due to higher spending on public administration and defence. • In contrast, there was no growth in gross fixed capital formation in the latest quarter as a 3.4% increase in business investment was offset by a 6.7% fall in government investment. • Net trade also restrained the economy’s expansion as import volumes grew more quickly than exports. • While the stronger-than-expected gain in GDP in Q2 will be welcomed, the UK’s post-pandemic economic performance has been slow. The level of GDP in Q2 2023, for example, was still some 0.2% below the level in Q4 2019, just prior to the onset of the pandemic.