UK economic growth slowed in the second quarter but still managed to beat expectations despite a challenging backdrop.
Official figures from the Office for National Statistics showed the economy expanded by 0.3% between April and June, following an increase of 0.7% in the first quarter.
Growth was largely driven by a 0.4% increase in services and 1.2% jump in construction, helping to offset a 0.3% drop in the production sector.
The ONS said monthly GDP is estimated to have grown by 0.4% in June, with growth across all three sectors. It follows a fall of 0.1% in both May and April.
The figures came ahead of expectations, with city analysts widely expecting growth of 0.1% in the second quarter. However, experts warned that the outlook remains challenging for the government.
Danni Hewson, head of financial analysis at AJ Bell, said: “The economy has continued its positive trajectory and grew by more than had been expected in the three months to June. But that growth has slowed significantly from the 0.7% charge at the start of the year and even the most charitable can’t consider the pace as anything other than sluggish, especially when you factor in population growth.
“For Rachel Reeves today’s figures will provide a welcome boost as she draws up her Budget plans, with promises that she is looking for ways to go further and faster when it comes to stimulating the economy.
“The Government put growth at the top of its agenda, so expansion in the construction sector will provide a glimmer of hope that at least some of its plans are beginning to bear fruit.”
However, Lindsay James, investment strategist at Quilter, highlighted a number of hurdles the Government faces in the run up to the Autumn Budget.
“The labour market is weakening, the Government appears to be planning for additional tax hikes in the Autumn and global factors make business planning difficult. None of these issues carry easy fixes and there are very few short-term solutions.
“With global growth set to slow at the same time as this slowdown in the UK, the picture is only becoming more challenging. Investors too continue to be fairly pessimistic on UK growth despite that stellar first quarter.”
James said a weakening economy and struggling labour market should provide the Bank of England with enough cover to lower interest rates further, despite persistent inflation.
“Whether this is enough to boost consumer and business confidence remains to be seen – particularly given the tax pain being foreshadowed for later this year,” added James.
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