The UK economy grew by 0.2% in August, supported by the services sector

A Canada Square stands between the Citibank building and the HSBC building in the heart of the Canary Wharf financial district on October 14, 2022 in London, United Kingdom.

Mike Kemp | In pictures | Good pictures

UK gross domestic product rose 0.2% in August, somewhat recovering from a downwardly revised 0.6% contraction in July, the Office for National Statistics estimated on Thursday.

Services output was the main contributor to growth in August, adding 0.4% in the month to offset a 0.7% drop in manufacturing output and a 0.5% decline in construction output.

„Although this data point is not yet consistent with a slowdown in the UK economy, it should be seen in the aggregate of the data, which shows early signs of a cooling in the labor market and thus inflation is down the road,” said Mathieu Sawari, chief European strategist at BCA Research.

„This does not change the outlook for the Bank of England and confirms that Bank Rate is not high from here, but will remain at current levels for the long term.”

The Bank of England ended 14 consecutive interest rate hikes last month after data showed inflation was running below expectations. Between December 2021 and August 2023, the bank raised its key policy rate from 0.1% to 5.25% over 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,” UK Finance Minister Jeremy Hunt said on Thursday.

„While this is a good sign, we still need to tackle inflation so we can unlock sustainable growth.”

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UK inflation eased to 6.7% year-on-year in August, below expectations but still above the Bank’s 2% target.

Suren Thiru, director of economics at the Institute of Chartered Accountants in England and Wales (ICAEW), said the modest rebound from the July contraction „provides further evidence that higher borrowing costs are hurting the economy”. November meeting less.

The disappointingly weak growth points for growth reflected a slowdown in August GDP growth, poor weather and a slowdown in services activity in July as the economy falters as inflation and high interest rates hamper businesses and consumers, Mr. strikes.

„Inflation, higher taxes and the lagged impact of previous interest rates have weighed heavily on consumer demand and business activity, with the UK likely to remain close to recession until next year,” he said.

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