The UK economy grew by 0.5% in the second quarter, falling short of the expected 0.6%. This slowdown follows the Labour party's rise to power and shows waning momentum in economic growth. The growth rate, down from 0.7% in the first quarter, poses a challenge for Prime Minister Keir Starmer, who has aimed to boost the growth rate to 2.5%.
Current market confidence is diminishing, with predictions of further slowdown to 0.3% per quarter. Data released by the UK Office for National Statistics highlights that GDP grew by 0.5% in Q2, lower than the previous forecast of 0.6% and the 0.7% growth in Q1. This puts pressure on Prime Minister Starmer, who has promised voters that he would improve public services through economic growth. Starmer's 2.5% growth target far exceeds the average level since the financial crisis and future expectations.
Since Labour took power in July, there are signs that the economy is losing steam, partly due to the party's warnings about public finances. Output remained flat in July, marking the third time in four months, as market confidence declined. Concerns grow that Chancellor Rachel Reeves will announce tax increases and budget cuts on October 30 to address the fiscal gap left by the Conservatives. Recent surveys suggest that economic growth is expected to slow to 0.3% per quarter.
Additionally, historical revisions to the national accounts have reweighted the relative sizes of various sectors for the first time since the pandemic. Last year's economic growth was revised to 0.3%, higher than the previously estimated 0.1%, but the economy remained in recession in the second half of the year.
The savings rate increased to 10%, the highest since 2021, reflecting consumer caution. Despite a 1% rise in per capita disposable income this quarter, wage growth outpaced inflation. However, the high savings rate indicates that consumers remain wary about future economic prospects.
