London city skyline on June 10, 2024 in London, United Kingdom. The City of London is a city, ceremonial county and local government district containing the main central business district of London CBD. The City of London is widely referred to simply as the city is colloquially known as the Square Mile.
Mike Kemp | In the photo Getty Images
LONDON – The UK economy grew by 0.4% in May, flash figures released by the Office for National Statistics showed on Thursday, with the British pound jumping to a four-month high against the US dollar after the announcement.
Gross domestic product came in above the 0.2% monthly expansion forecast by a Reuters poll of economists.
The British economy emerged from a shallow recession in the first quarter of the year, then eased in April.
The country’s dominant services sector showed steady growth of 0.3% in May as output in both manufacturing and construction recovered from losses, rising 0.2% and 1.9% respectively.
Sterling was 0.14% higher against the US dollar at $1.2863 by 8.30am in London – the highest level for the British currency since March 8, 2024, according to LSEG data.
The broad-based recovery will be welcomed by the newly elected Labor Party as Prime Minister Keir Starmer takes up his first week in office.
Goldman Sachs last week upgraded its growth forecast for the UK after centre-left Labor’s landslide victory in the country’s general election. The party campaigned on a platform that focused on promoting economic growth, housing and planning.
The party’s large parliamentary majority and business-friendly messaging have led analysts to describe the government as generally supportive of UK assets.
In a note, Ashley Webb, UK economist at Capital Economics, highlighted the recent trend in British GDP growth in recent months – excluding the lack of growth in April – “which supports the idea that the double drag on activity from higher interest rates and higher inflation is starting to fade.”
UK price rises have eased from a 41-year high of 11.1% in October 2022, to the Bank of England’s 2% target in May this year. The performance has raised expectations for a future interest rate cut by the Bank of England.
However, the BOE continued to strike a cautious tone at its June meeting even as its peers at the European Central Bank began their rate-cutting path, warning that key indicators of the sustainability of UK inflation “remained raised”. Markets remain roughly evenly split on the prospect of a downside meeting in August.
Work agenda
It will now be up to the new government to build on the momentum behind the latest economic growth figures, Muniya Barua, deputy chief executive at industry campaign group BusinessLDN, said in emailed comments.
“With public finances stretched, ministers need to follow the tide of recent pro-growth announcements by prioritizing high-impact, low-cost measures which, taken together, can help unlock much-needed private investment necessary,” Barua said, citing a review of the practice. system and abolition of stamp duty on share transactions.
New Chancellor of the Exchequer Rachel Reeves last week said Labor would introduce mandatory house building targets, lift the ban on new onshore wind farms in England and reform planning rules. On Wednesday it announced the launch of a £7.3 billion ($9.4 billion) sovereign wealth fund aimed at attracting private sector investment in UK infrastructure projects.
The business community now awaits Labour’s first fiscal statement, which is expected no earlier than mid-September, Lindsay James, investment strategist at Quilter Investors, said in a note.
This “should make tax and spending plans more clear. This will allow businesses to plan better ahead and may reinvigorate their desire to invest,” James said.
“However, this would take time to play out and until there is a better understanding of what is to come, we are unlikely to see any significant acceleration in GDP growth,” she added.