GDP Growth Surprises at 0.2 per cent in Q2

Main points

• Monthly GDP grew by 0.5 per cent in June following a contraction in growth by 0.1 per cent in May. This monthly figure was driven both by a weaker-than-normal May performance due to the extra bank holiday, as well as stronger-than-expected growth in production and construction.
• GDP grew by 0.2 per cent in the second quarter of 2023 relative to the previous quarter, higher than we had forecast last month. However, as shown in figure 1 below, the economy has largely flatlined following the initial stages of post-pandemic recovery; today’s monthly GDP is estimated to be only 0.8 per cent above its pre-pandemic (February 2020) level.
• Our early forecast for the third quarter of 2023 expects GDP to grow by 0.3 per cent, remaining broadly consistent with the longer-term trend of low, but stable, economic growth in the United Kingdom. That said, as persistently high inflation continues to squeeze household budgets, alongside the effects of the high cost of borrowing, demand will be curbed in the near term. As a result, service-sector output in particular may falter and drag down on GDP in the coming months. The risks to GDP at the moment thus continue to be skewed downside.

"Today’s data indicate that GDP grew by 0.5 per cent in June relative to May, driven partially by a weaker May performance due to the extra bank holiday and a strong rebound in production output in June. Further, GDP grew by 0.2 per cent in the second quarter of 2023, as production and construction output grew strongly enough in June to pull the whole quarter ahead. Both figures represent positive surprises to GDP, despite the downside risks that high inflation and interest rates pose to economic growth. These data are in line with our recent UK Economic Outlook forecast in which, despite risks being tilted to the downside, we expect the UK to avoid a recession both this year and next"

Paula Bejarano Carbo,
Associate Economist

For a complete forecast of the UK economy, please see our UK Economic Outlook, published earlier this week.