Growth resumes in the United Kingdom

The British economy erased part of its July contraction in August. According to data released by the Office for National Statistics (ONS) on Thursday, gross domestic product (GDP) increased by 0.2% after contracting by 0.6% (revised from -0.5%) in the previous month. The contraction in July was the worst since June 2022. This recovery is in line with expectations. Compared to August 2022, GDP increased by 0.5%, according to a consensus of economists polled by Reuters. Rain and strikes in July punished the British economy, particularly in education.

The improvement recorded in August will help to overcome the sluggish situation that may occur during the July-September period. The ONS said growth of 0.2% in September would be enough to avoid a contraction for the rest of the third quarter. In the three months from June to August, the economy grew by 0.3%, driven mainly by the automotive and construction sectors. Growth for June was revised to 0.5% to 0.7%.

Despite this small recovery in August, the British economy remains weak, driven by better-than-expected +0.4% growth in services. Activity in the industrial and construction sector contracted again in August. This week, the International Monetary Fund (IMF) revised its growth forecast for the United Kingdom slightly upwards to 0.5% for this year (after being more negative in its previous forecasts) but down to +1% and +0.6% for 2024. . The British economy is one of the slowest growing economies in the developed world. There are also difficulties associated with Brexit, including a crisis in purchasing power and a rise in rates that will drive up financing costs, particularly in real estate.

A weak economy

This weak growth prompted the Bank of England (BoE) to take a surprise pause in its monetary tightening at its last meeting in September. Investors expect a new level at the next meeting, with only a quarter chance of a 25 basis point (bps) rise.

Although activity in some sectors of service consumption (notably rent) has not returned to pre-pandemic levels, the British economy is now 2.1% higher than in February 2020. The ONS recently revised its previous estimates for British growth sharply upwards.

British Finance Minister Jeremy Hunt, who is under pressure to announce new support measures for families when he presents the budget at the end of November, cited the economy’s resilience in confirmation.Stronger growth is needed, which means winning the fight against inflation, supply-side measures and caution in the face of global instability.» IMF estimates BoE to raise rates by another 25 bps. Although declining, UK inflation remains the highest in the developed world.