One Canada Square, located in the heart of the Canary Wharf financial district, stands between the Citibank and HSBC buildings in London, England, on October 14, 2022.
Mike Kemp | In Photo | Getty Images
The Office for National Statistics estimated on Thursday that UK gross domestic product (GDP) rose 0.2% in August, partially recovering from a downwardly revised 0.6% contraction in July.
The main contributor to growth in August was service production, which rose 0.4% month-on-month, offsetting a 0.7% decline in industrial production and a 0.5% decline in construction production.
“While this data point is not yet consistent with the build-up of slack in the UK economy, it needs to be seen in the context of the data as a whole, and this shows early signs of a cooling labor market and therefore a fall in inflation.” said Mathieu Sabally, chief European strategist at BCA Research.
“This does not change the Bank of England’s outlook and it is unlikely that Bank of England rates will rise significantly from here, but it does confirm that they will remain at current levels for an extended period of time.”
The Bank of England last month halted its 14th consecutive interest rate hike after data showed inflation was lower than expected. From December 2021 to August 2023, the central bank raised its key policy interest rate from 0.1% to 5.25%, the highest level in 15 years.
“The UK has grown faster than France and Germany since the pandemic, and today’s data shows the economy is more resilient than expected,” British Finance Minister Jeremy Hunt said on Thursday.
“While this is a good sign, inflation still needs to be tackled to achieve sustainable growth.”
Britain’s headline inflation rate fell to an annual rate of 6.7% in August, lower than expected but still well above the central bank’s 2% target.
Suren Tiloo, economics director at the Institute of Chartered Accountants in England and Wales (ICAEW), said the overwhelming recovery from recession in July was “further evidence that rising borrowing costs are having a negative impact on the economy”. , which will cause the Bank of England to raise interest rates further. A November meeting is unlikely.
“This disappointingly weak growth recovery shows that the economy is fraying at the margins, with inflation and rising interest rates holding back businesses and consumers,” Thirou said, adding that GDP growth in August was mainly due to It added that this reflects a reversal of the strain on service activity in July due to bad weather. strike.
He added: “The UK is likely to remain uncomfortably close to recession next year, with the effects of inflation, tax hikes and previous delayed interest rate increases weighing on consumer demand and business activity.”
