The Office for National Statistics (ONS) has released revised figures which show UK GDP grew by 0.5% between April and June this year, rather than the 0.4% previously reported.
The update comes against a backdrop of rising inflation due to the Iran-US war, and expectations the Bank of England will have to raise rates to counter it.
Another important piece of context is the fast-approaching Budget on 28 October. Economic growth improving can create more flexibility in tax or spending decisions, although the difference in this case is very marginal.
Danni Hewson, AJ Bell head of financial analysis, said: “Good news about the resilience of the UK economy will help reinforce the ‘good vibes’ this government is keen to instil, but there’s no doubt that all of us, especially the chancellor, have one eye on the horizon.
“There are plenty of menacing dark clouds hinting at more pain for household budgets, pain which the Treasury has little scope to prevent.
“Additional growth in the service sector seems to have come courtesy of the rush by businesses to increase their AI capabilities. It is hoped these moves can help companies increase productivity levels and further bolster the country’s economy.”
Andrew Wishart, senior UK economist at Berenberg, warned the better news on GDP could be short-lived.
“GDP growth will likely slow from here as the double squeeze on aggregate demand from higher energy prices and interest rates intensifies,” he said.
“Back in July, the jump in interest rates since the start of the Iran war had partly reversed and households were yet to experience higher energy prices. The Ofgem price cap only rose to reflect higher energy prices in the same month, when hot weather prevented households needing much fuel.
“As for interest rates, investors only prices in one hike compared to five this morning. The repricing of interest rates since has tightened financial conditions and squeezed credit growth already.”
