Beating estimates of 0.2%, the UK’s economic output grew by 0.5% in June, official data revealed today. Experts said this move could support further Bank of England tightening.
There was a “large upside surprise” in manufacturing growth, growing by 2.4% on the month, relative to expectations of 0.2% growth, pointed out Tomasz Wieladek, chief European economist at asset manager T. Rowe Price.
According to him, more robust growth in Q2 2023 (0.4%) relative to Q1 2023 (0.2%) suggested that monetary policy is “not yet working as expected”.
Construction output, usually an interest rate-sensitive category, rose by 1.6% against expectations of zero growth. Services, too, grew by 0.2% in June, in line with expectations. “This suggests that the rate hikes this year are not yet fully weighting on growth data as expected,” said Wieladek.
Private consumption grew by 0.7% quarter on quarter in Q2 against expectations of no growth. Total Business investment grew by 3.4% against an expectation of a slight contraction of -0.3%.
“Private consumption and investment have historically been susceptible to the interest rate cycle. The fact that these categories surprised to the upside demonstrates that growth data remain resilient to the Bank of England’s rate hikes for now,” said Wieladek.
Next week will witness the release of UK CPI inflation data for July and wage inflation data for June, and Wieladek envisaged that headline CPI inflation will likely come down. In its monetary policy report, the Bank of England expects regular pay growth to decelerate from 7.7% on the three-month year-on-year measure in May to 7.6% in June, indicative of the “beginning of a turning point” in pay growth next week.
Wieladek concluded that the Bank of England needs to alleviate pressure off the labour market for pay growth to start coming down and will “likely need to hike again”.
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