∫Behind the Numbers: An unusual holiday and labor problems.
The data, released by the Office for National Statistics on Friday, showed the services sector grew by 0.1 percent in the second quarter, driven by consumer-facing services. There was also growth in household and government spending, although international trade fell.
The data beat the Bank of England’s forecast last week for 0.1 percent growth, and some economists had predicted a quarter of no growth. Weighing on their estimates were three national holidays in May, including a special one for the coronation of King Charles. And labor strife continued thorough the quarter, weighing on economic activity; the statistics office reported nearly 388,000 working days lost because of labor disputes in April and May alone, although the number of strikes has been falling.
Background: An economy that’s growing, but barely.
The British economy has been sputtering for the past year. It has avoided a recession, but it has not grown much either. Overall economic output in Britain remains lower than it was before the Covid pandemic in early 2020.
For over a year, beginning with the second quarter of 2022, Britain’s economy expanded each quarter by 0.1 percent — except for the July-September period last year, when it contracted by the same amount.
Other recent data point to an economy that is slowing. Two business surveys — the S&P purchasing managers’ indexes for Britain’s manufacturing and services sectors — showed activity falling in July to the lowest levels for six or seven months.
Part of the problem is that Britain remains saddled by high inflation, which has spurred an aggressive campaign of interest rate increases by the Bank of England. Last week, the bank’s policymakers raised rates for the 14th consecutive meeting.
Inflation has been coming down, to an annual rate of 7.9 percent in June from 11.1 percent last fall, but the central bank is concerned that price pressures have become embedded in the economy, such as via wage increases.
At its last meeting, policymakers said they would make sure interest rates were “sufficiently restrictive for sufficiently long” to push inflation down to their 2 percent target level. Andrew Bailey, the Bank of England’s governor, said that it was too soon to even think about cutting interest rates.
Comparisons: Growth in Europe and United States
In Europe, the 20 countries that use the euro currency haven’t faired much better in terms of economic growth. The eurozone expanded 0.3 percent in the second quarter, after stalling earlier in the year and shrinking 0.1 percent late last year.
Growth has been more robust in the United States, which has expanded by more than 0.5 percent in the past two quarters.
What’s Next: More of the same.
The broad consensus among forecasters is for more slow growth in Britain over the coming year or two, and perhaps a risk of contraction, as the central bank’s campaign to raise interest rates to reduce inflation continues.
In its forecast last week, the Bank of England, said “underlying quarterly GDP growth has been around 0.2 percent during the first half of this year. Bank staff expect a similar growth rate in the near term, reflecting more resilient household income and retail sales volumes.”
On Thursday, the National Institute of Economic and Social Research, a think tank based in London, said Britain’s economy would grow 0.4 percent in 2023, and 0.3 percent in 2024.
The heaviest impact of this slow growth would be on people with low incomes, the group said.
“Low economic growth and stagnant productivity is increasing the financial vulnerability of households in the bottom half of the income distribution and the incidence of destitution at the poorest end,” the report said.
