UK economy has grown by 0.6% in the three months to June

This morning’s UK GDP figures showed the economy continuing to expand at a solid-enough clip in the second quarter, with the economy having grown by 0.6% QoQ in the three months to June, just a touch slower than the BoE’s 0.7% forecast.

While the data, as always, is subject to revision as time goes on, the figures point to the solid economic momentum seen in Q1, and rebound from the shallow recession at the end of 2023, having both continued.

In Q2, unsurprisingly, the majority of the economic growth observed was powered largely by the services sector, where resilient growth of 0.8% offset very modest declines in output seen in both production, and construction, a picture that was broadly in line with that painted by leading indicators prior to the release.

Naturally, with the BoE having now delivered the first Bank Rate cut of the cycle, at the August MPC meeting, and policy set to become gradually less restrictive from here on in, the monetary policy backdrop is set to become increasingly supportive.

Nevertheless, downside risks to GDP growth remain significant, as the labour market appears set to continue to gradually loosen, despite the lower-than-expected unemployment figures in June.

Meanwhile, fiscal policy also looks set to tighten notably in the fourth quarter, as Chancellor Reeves seeks to deliver further spending cuts and sizeable tax rises – aka, an effective return to austerity – in the October Budget, to plug a supposed £22bln ‘black hole’ within the UK’s public finances. The Treasury, hence, runs the risk of shooting itself in the foot in a few months’ time, and bringing the recent run of solid economic expansion to a shuddering halt.