The United Kingdom economy grew faster than expected in the second quarter of this year, increasing by 0.2 per cent in April to June.

This is up from 0.1 per cent in the previous three months and the best quarterly reading in more than a year, according to the Office for National Statistics (ONS). This positive economic growth was boosted by a recovery in car manufacturing and a surprisingly strong June.

The data surprised economists with a poll of them beforehand forecasting no growth in output during the quarter. This reading was helped by an unexpectedly strong performance in June, when output rose by 0.5 per cent.

Economic growth had fallen by 0.1 per cent in May because of an extra bank holiday to celebrate the coronation of King Charles after growth of 0.2 per cent in April. However, the economy still remains 0.2 per cent smaller than in the final quarter of 2019, before the onset of the coronavirus pandemic triggered the deepest recession on record.

Weakest period outside a recession for 65 years

The cost of living crisis period of the last 18 months remains the weakest period outside a recession for 65 years, the Resolution Foundation think-tank pointed out, despite the UK economy dodging a technical recession of two consecutive quarters of economic decline. Darren Morgan, ONS director of economic statistics, says the economy bounced back from the effects of May’s extra bank holiday to record strong growth in June.

Manufacturing saw a particularly strong month with both cars and the often-erratic pharmaceutical industry seeing buoyant growth.

“Services also had a strong month, with publishing and car sales and legal services all doing well, though this was partially offset by falls in health, which was hit by further strike action. Construction also grew strongly, as did pubs and restaurants, with both aided by the hot weather,” Morgan told The Guardian.

Manufacturing sector performance

The increase in output in the latest quarter was mainly driven by an increase of 1.6 per cent in manufacturing, the ONS reported adding that falling prices of materials may be “relieving some pressure on manufacturers”. The largest positive contribution was from making transport equipment, after the Society of Motor Manufacturers and Traders reported a 16.2 per cent increase in car manufacturing in June 2023 compared with the same month a year ago.

Carmakers endured a torrid coronavirus pandemic, as shortages of computer chips meant they were unable to produce enough cars to meet soaring demand. However, during 2023 the chip shortage has eased, allowing production to recover. UK-based manufacturers such as JLR, the maker of the Jaguar and Land Rover brands, are now working through big backlogs of orders.

Some analysts cautioned that the picture of the UK economy given by the June acceleration in output was overly flattering.

Cost of living driving inflation

The cost of living crisis has been driven by the highest inflation in four decades at 11.1 per cent in October. Inflation has gradually fallen – albeit slower than Rishi Sunak had hoped – and there was some sign of a pickup in consumer-facing services in the second quarter.

However, the Bank of England has raised interest rates steeply to fight inflation, putting further pressure on many households, particularly those coming off fixed-rate mortgage periods. James Smith, the Resolution Foundation’s research director commented, “with the economy continuing to stall, we are far from out of the cost of living crisis woods yet. Such weak growth will feel like a recession to many as families struggle with the ever-rising cost of essentials and higher mortgage repayments.”

The chancellor, Jeremy Hunt, remarked, “the actions we’re taking to fight inflation are starting to take effect, which means we’re laying the strong foundations needed to grow the economy. The Bank of England are now forecasting that we will avoid recession, and if we stick to our plan to help people into work and boost business investment, the IMF [International Monetary Fund] have said over the longer term we will grow faster than Germany, France and Italy.”