UK economy posts 0.4% second-quarter growth as businesses absorb energy price shock

Highlights

UK GDP grows 0.4 per cent in Q2 2024, with services up 0.5 per cent and business investment jumping 1.7 per cent.
The Bank of England forecasts inflation rising from 2.6 per cent to 3.2 per cent and projects 1.1 per cent GDP growth this year.
Sterling holds at $1.35 post-release, and swaps imply a one-in-four chance for a September Bank of England rate hike.

Second-quarter expansion and sector drivers

As reported by Financial Times, citing the Office for National Statistics, quarterly GDP growth of 0.4 per cent follows a 0.6 per cent increase in the previous three-month period and includes monthly growth of 0.3 per cent in June after flat output in May, which is revised down from an earlier 0.1 per cent rise.

June activity is supported by early World Cup demand, with gains for restaurants, alcohol manufacturers and television producers. The ONS says hot weather has a mixed effect, helping retailers and recreation providers but weighing on construction and education, where some schools close because of the heatwave.

Services, the UK’s largest sector, rise 0.5 per cent in the quarter, led by information and communications and by professional and scientific activity. Construction grows 0.3 per cent, production is flat, and real GDP per head is up 1 per cent from the same quarter a year earlier.

On the expenditure side, business investment jumps 1.7 per cent in the quarter and real household consumption increases 0.3 per cent. Government consumption falls, suggesting growth is led by the private sector, a pattern some analysts view as a more durable basis for expansion.

Inflation risks and policy outlook

The figures offer some support for Prime Minister Andy Burnham as he says he wants to broaden growth across the country and address the cost of living crisis. The Bank of England expects the UK economy to expand 1.1 per cent this year, slightly below the 1.3 per cent pace recorded for 2025.

Inflation is still expected to squeeze household incomes, with the Bank forecasting a rise from 2.6 per cent to 3.2 per cent toward the end of the year. The Iran war also continues to cloud the outlook, and people familiar with internal UK Treasury scenarios say prolonged disruption in the Strait of Hormuz through year-end could reduce 2027 growth to 0.3 per cent.

George Brown, senior economist at Schroders, says the economy has been more resilient than many expected given the Middle East conflict, but warns that seasonal effects may flatter the quarterly reading and that momentum is likely to fade later this year. Tomasz Wieladek at T Rowe Price says the stronger role of the private sector is a positive sign for sustainability, though analysts also warn that pre-Budget uncertainty, higher energy bills and elevated petrol prices may curb disposable incomes.

The pound remains steady at $1.35 after the release, and market pricing for the next Bank of England meeting changes little. Traders in swaps markets still imply about a one-in-four chance of a rate increase in September, while investors remain split over the timing of one expected quarter-point rise before the end of the year.

Our earlier coverage of the UK’s June GDP surprise outlined how output rose 0.3% month on month, helping lift second-quarter growth to 0.4%. It also flagged that the outlook remained cautious, with higher energy prices linked to the Iran war and ongoing pressure on household budgets shaping expectations for the rest of the year.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.