Experts expected stagnation in the UK in the spring, but instead GDP rose. Despite recent resilience, economists expect tough times ahead for the British economy.

The British economy grew unexpectedly in the spring. According to the national statistics office ONS, gross domestic product (GDP) rose 0.2 percent between April and June compared to the previous quarter. Analysts expected economic performance to stagnate in the second quarter. The British economy grew 0.4 percent year-on-year.

This meant that the British economy was able to take advantage of the slight growth at the beginning of the year. In the first three months of the year, economic output rose 0.1 percent compared to the previous quarter.

In June alone, GDP increased notably by 0.5 percent compared to the previous month, more than double what was expected. Analysts on average only expected a 0.2 percent rise after economic output contracted 0.1 percent in May.

Strength Industrial production

There was also unexpectedly strong development in industrial production. In June, industrial companies increased their production by 1.8 percent month-on-month, as also announced by the statistics office. On average, analysts expected just a 0.2 percent rise after output fell 0.6 percent in May. The statistics office said companies cited an additional national holiday in May as the reason for increased production in June compared to May. Business investment also increased 3.4 percent compared to the previous quarter.

“The measures we have taken to tackle inflation are starting to have an effect, meaning we are laying a solid foundation for the economy to grow,” said Finance Secretary Jeremy Hunt.

Inflation remains high

Still, the country remains the only major advanced economy that has yet to return to late 2019 levels, official data showed on Friday. In the second quarter, the British economy is now 0.2 percent below the level at the end of 2019. In Germany, economic output is already 0.2 percent above the 2019 level, in France a 1.7 percent, in Italy 2.2 percent and in the United States even 6.2 percent. percent.

Britain still suffers from comparatively high inflation. Inflation in the United Kingdom fell in July. However, the annual inflation rate, at 7.9 percent, was still clearly above the levels of the euro area and the US. Despite the Bank of England’s measures, inflation is still very far from the 2 percent target.

Will interest rates continue to rise?

At the beginning of the month, the British central bank raised the official interest rate again by a quarter of a percentage point, to 5.25 percent. It was the 14th interest rate increase since the end of 2021. At that time, the interest rate was just above zero. The key interest rate is currently at its highest level since the 2008 financial crisis. The unexpected growth could set the stage for further interest rate increases by the central bank. The central bank itself only expected 0.1 percent growth for the second quarter.

Most economists expect tough times ahead for the UK economy, despite recent resilience. “With much of the burden of higher interest rates still to come, we maintain our forecast below the consensus that the UK is heading for a mild recession later this year,” said economist Ruth Gregory of consultancy Capital Economics.