economy business cycle
British economy grows unexpectedly
Status: 11.08.2023 | Reading time: 2 minutes
Die Bank of England
Source: dpa
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The experts had actually expected that the economy in Great Britain would not grow, at most stagnate. But the gross domestic product is rising slightly. This could also have an impact on the British central bank’s deliberations.
The British economy unexpectedly expanded somewhat in the spring. The gross domestic product (GDP) rose by 0.2 percent from April to June compared to the previous quarter, as the national statistics office ONS announced on Friday. Experts polled by Reuters had only expected stagnation. The surprisingly good data should lead to the British central bank tightening its monetary policy further. “This is a concern for the Bank of England – they may well have considered suspending rate hikes soon,” said fund manager Neil Birrell of wealth manager Premier Miton. “But this data will make that more difficult.”
The central bank in London raised the key interest rate by a quarter of a point to 5.25 percent last week – the highest level in 15 years. It was the Bank of England’s (BoE) 14th consecutive rate hike. Federal Reserve Chairman Andrew Bailey had signaled the need to ensure “that inflation returns to the 2% target and stays there”. At 7.9 percent, the rate of inflation in July was still one of the highest among the major industrialized countries.
Economically, Great Britain is clearly lagging behind other economic areas. It is the last major economy that has still not reached the level it was before the Corona crisis. The UK economy is now 0.2 percent below where it was at the end of 2019 in the second quarter, while Germany is 0.2 percent, France 1.7 percent, Italy 2.2 percent and the US 6.2 percent above. Many economists believe that the UK economy is facing difficult times.
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Rising interest rates and persistently high inflation are weighing on the economy, which had grown minimally by 0.1 percent at the beginning of the year. In June alone, however, GDP rose noticeably by 0.5 percent compared to the previous month and was therefore more than twice as strong as expected. The numbers pushed the pound higher against the US dollar and euro.
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“The measures we have taken to fight inflation are beginning to take effect,” Treasury Secretary Jeremy Hunt said. “That means we are laying a solid foundation for economic growth.” However, economist Ruth Gregory of the consultancy Capital Economics pointed out that much of the burden of higher interest rates is yet to come. “We stand by our forecast that the UK is headed for a mild recession later this year.”
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