Investment - Articles - Economic growth a mirage as Q2 fails to keep up

 “Today’s GDP figures show that the encouraging growth seen in the first quarter was somewhat of a mirage and unlikely to be repeated anytime soon. GDP growth in the second quarter has dropped to 0.3%, and the UK appears to be stuck back where it was – anaemic growth with little sign of improvement. Although today’s GDP data is slightly better than expected and June’s growth came in at 0.4%, figures released earlier this week highlight where a lot of the issues lie. 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. In our own survey of global fund managers, expectations for real GDP growth in the UK for 2025 sit at 0.9 %, suggesting that very little growth will be eked out in the second half of this year.

 “There do remain some bright spots, however. Production and construction have bounced back after a poor couple of months, while consumers are benefitting from wage growth continuing to outstrip inflation, providing a little bit of ballast amongst the general population’s finances. Furthermore, a weakening economy and struggling labour market should give the Bank of England enough cover to lower interest rates further, despite inflation continuing to be a thorn in its side. 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.