UK Recession 'can Still Be Avoided' As GDP Grows 0.2% In Q2

The ONS also adjusted figures for Q1, resulting in an uplift to the original estimate of 0.1%, to 0.3%.

Growth in Q2 was largely driven by a 1.2% increase in the production sector, experiencing rises in nine out of its 13 sub-sectors, while also reflecting falling input prices across the three-month period relieving pressure on manufacturers.

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Chancellor of the Exchequer Jeremy Hunt said the ONS data published today (29 September) proved the doubters wrong about the UK economy's ability to recover from Covid-19.

"We were among the fastest countries in the G7 to recover from the pandemic and, since 2020, we have grown faster than France and Germany. The best way to continue this growth is to stick to our plan to halve inflation this year, with the IMF forecasting that we will grow more than Germany, France and Italy in the longer term," Hunt added.

Richard Carter, head of fixed interest research at Quilter Cheviot, said the GDP quarterly accounts "give some hope that a recession can still be avoided by the UK", at least in 2023.

He also noted the ONS' revision of Q1 GDP data meant that, although challenging, economic growth "is not quite non-existent for the UK".

Cater continued: "We are also seeing shoots that the cost of living crisis may be easing for households. While expenses are still elevated compared to pre-pandemic periods, disposable incomes are beginning to move ahead, bringing relief to many households who will have struggled over the winter months and where excess savings from the pandemic have dried up.

"However, given the speed of interest rate rises and the cumulative effect of the cost of living crisis, it may just be a case of the pain being delayed, with 2024 looking more challenging. The BoE has an incredibly difficult job to do, and with next year likely to see a general election at the same time, they will not want to overcorrect and tip the balance of power one way or another."

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Yet economic headwinds will still be felt by consumers as interest rates are set to remain higher for longer, he argued: "The economy may be holding up just now, but it is asking a lot for to continue to do so for quite so long."

Charles Hepworth, investment director at GAM Investments, also highlighted the impact that strikes over the last 18 months have had on the British economy, arguing that "growth in the economy is still at the mercy of strike action".

He added it is "undeniable" the ONS data translate into a "slightly better outlook for the UK economy than many had feared", but he also asked whether the economic resilience may boost the Conservative party ahead of next year's general election: "On current polling, it would suggest not."

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