UK economy grows leaving the Bank of England's recession prediction in tatters

The UK economy grew slightly over the second quarter of this year, providing some relief to economists who feared the country had descended into recession. Despite an initially predicted decline by the Office for National Statistics (ONS), refreshed data from the research body revealed that gross domestic product (GDP) grew by 0.2 percent over the three months to June.

This stands in contrast to their original estimate, which placed UK growth as shrinking by 0.1 percent.

The data means the UK might not currently be in recession, as was predicted by the Bank of England earlier this month.

The positive news will likely provide relief for Liz Truss and Chancellor Kwasi Kwarteng, whose mini-budget last week saw an economic backlash.

A technical recession is called when the economy goes through two consecutive quarters of decline.

Based on the ONS’s previous guidance the Bank of England had suggested the UK was likely to be in recession, forecasting another decline of 0.2 percent for the three months to September.

But the ONS’s revised figures mean that even if the economy declines as predicted this quarter, this still does not indicate that the UK is in recession. The ONS said this was driven by upwards improvements in the health and financial sectors.

ONS chief economist Grant Fitzner said: “These improved figures show the economy grew in the second quarter, revised up from a small fall. They also show that, while household savings fell back in the most recent quarter, households saved more than we previously estimated during and after the pandemic.”

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However, the economy as a whole remains smaller than was previously predicted. 

Economists said they believe overall GDP is now 0.2 percent below pre-pandemic levels, having previously said they thought it was 0.6 percent bigger than before COVID-19 struck.

Mr Fitzner said: “Overall, these new figures show that the economy was slightly smaller than our previous estimate, and in the second quarter was a little below its level when the pandemic struck, as the economy shrank more than we first estimated during the early months of the pandemic but rebounded more strongly in the latter half of 2021”.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The downturn in economic activity during 2020 looks even worse than previously thought, and the subsequent recovery even weaker, following the latest set of national accounts revisions.

“These revisions will compel the OBR to revise down further its estimates for future potential GDP, though as they also imply that the tax-to-GDP ratio is higher than previously estimated, the impact on the public finances should be modest.”

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The market has already reacted to the positive shift in expectations, with the UK’s FTSE 100 rising slightly after the announcement. The FTSE 100 rose 0.2 percent this morning, while the FTSE 250 climbed 0.7 percent.

However, the former is still facing its second straight quarterly decline since late 2018. Meanwhile, despite the boost, the FTSE 250 is still on track for its first decline in over three quarters since the financial crisis.

The boost to the stock market was primarily buoyed by banks and energy companies. The energy sector went up by 0.7 percent, supported by increasing oil prices, while banks gained 1.4 percent.

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