The UK economy flatlined in June, as uncertainty over the general election and industrial action took their toll on economic growth. It wasn’t expected to be a strong month for the economy, with markets forecasting very little GDP growth, if any. But the small dip in services output – a fall of 0.1 per cent, driven primarily by a fall in retail trade – was disappointing after five months of consecutive growth.
Still, June’s figures are the perfect example of why one month of data rarely tells the full story. Businesses reported to the ONS that ‘customers were delaying placing orders until the outcome of the election was known’ which applied across manufacturing, construction, and services. Meanwhile the junior doctors strike held the weekend before polling day contributed to a 0.9 per cent hit in the human health and social work activities sub-sector, which also weighed down economic growth in June.
Meanwhile the broader story this morning paints a much more positive picture for the UK economy. While growth in June took a pause, growth in Q2 for this year is estimated to be 0.6 per cent, roughly in line with what markets were predicting, as forecasts for UK growth have been repeatedly revised upwards since the start of the year. Moreover, despite the slight dip in June, they grew 0.8 per cent in the three months to June, indicating a positive upward trend that only paused at the start of the summer.
These numbers reflect the Bank of England’s rather dramatic revision to their growth forecasts for the year: an increase to 1.5 per cent, up from 0.5 per cent in their report from May. While the United States is reeling from far too optimistic growth forecasts at the start of the year, the UK is benefiting from lower expectations and better-than-expected results. Following on from the short and shallow recession experienced last year, Britain’s economic comeback is looking far stronger than even recently predicted, giving the UK a shot at a headline growth rate far higher than the 0.7 per cent predicted during the March Budget this year.
As noted before, decent growth figures are both good and bad news for Labour. It has not gone unnoticed – and it will not be forgotten – that Rishi Sunak and the Conservatives could have boasted about this economic good news if they had held off on holding the election until the autumn. This morning shadow chancellor Jeremy Hunt notes that the Q2 figures ‘are yet further proof that Labour have inherited a growing and resilient economy’ – one overseen by the Tories until the start of July. But Labour will get some of the credit now that it’s in charge.
But an economy on the up is not exactly the messaging Labour wants to push ahead of its first Budget in October. Chancellor Rachel Reeves’s narrative – that the economy is a mess and the public finances ruined – is necessary to usher in the tax rises and possible spending cuts that we are expecting in a few months’ time. But better-than-expected growth – which is bound to give the Chancellor more fiscal headroom than Hunt had in March – is going to challenge this narrative, especially as Labour continue to use their first weeks in office to announce some major spending plans, mostly in the form of public sector pay hikes (the train driver boost this morning – a 14 per cent raise over three years – is the latest example).
The better the economy performs, and the more Labour spends in the run-up to the Budget, the harder it is going to get to fully pin any kind of ‘black hole’ solely on their predecessor.