UK economy grew less than first thought GDP figures show – what it means for your money

THE UK economy grew less than first thought, revised GDP figures show.

Gross Domestic Product went up by 0.5%, not 0.6%, in the second quarter of this year, the Office for National Statistics (ONS) has said.

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Growth was mainly driven by a rise in the services sector, but the manufacturing and construction industries industry dragged down the headline figure, according to the ONS.

It comes following GDP growth of 0.7% from January to March, which was revised up from 0.6% previously.

GDP measures the value of goods and services produced in the UK.

It also estimates the size and growth of the economy.

The fresh figures published this morning show that the UK economy continued its recovery from recession at the end of last year, just at a slightly slower pace than previously thought.

Compared with the same quarter a year ago, real GDP is estimated to have increased by 0.7% between April to June this year.

The latest figures still mean that GDP has grown for two consecutive quarters and will come as a boost to the Government despite inflation sticking to 2.2% in August.

Liz McKeown, director of economic statistics, ONS said: "Today's updated GDP figures for 2023 and 2024 include new annual survey data, VAT returns and updated information about the relative size of each industry for the first time.

"However, after taking on these improvements, the quarterly growth path across the last 18 months is virtually unchanged."

Ms McKeown also added that according to the latest data show that household savings continue to increase and are now at their highest rate since the Covid-19 lockdowns.

Economists had previously predicted the UK economy would continue to grow across the second quarter of this year, with higher growth expected in the second part of 2024 and into 2025.

It came following inflation slowing to 2.2% from a record high of 11.1% in October 2022.

The UK economy shrank by 0.3% in the last three months of 2023 meaning it tipped into a technical recession, defined as two or more quarters in a row of falling Gross Domestic Product (GDP).

But, the recession was considered "mild" compared to others in recent history.

However, experts say that today's revised figures show the pace of economic recovery may have been "slightly overstated".

Professor Sarwar Khawaja FRSA, chairman, executive board, Oxford Business College, said: “The downward revision of quarterly growth from 0.6% to 0.5% sounds like a minor book-keeping change, but it is more significant than it might appear at first glance.

“It suggests that the initial optimism about the pace of economic recovery may have been slightly overstated.

“The revision primarily stems from a less robust performance in the services sector than initially thought, with growth adjusted from 0.8% to 0.6%."

He added that due to services accounting for around 80% of the UK economy, this morning's adjustment has "considerable implications".

"While the sector is still growing, it is facing more headwinds than previously estimated," he said.

What it means for your money

GDP is a measure of the economic output of companies, individuals and governments and how healthy an economy is.

A healthy economy is one where GDP is growing but if it stalls or is falling, it's bad news for businesses and consumers.

Most economists, politicians and businesses want to see GDP rising steadily.

This is because it usually means people are spending more, more tax is paid to the government and workers get better pay rises.

A healthy economy usually means lower inflation, rising employment, less poverty, and more money in your pocket.

Lower inflation is good because it means prices don't rise as fast, putting less financial pressure on households.

The consumer Prices Index (CPI) inflation stood at 2.2% in August, stalling from July following a slight rise from 2% the previous month.

However, this is still significantly lower than October 2022, when it peaked at 11.1% following soaring wholesale energy prices.

It's important to note when inflation falls that doesn't mean prices have stopped rising, they are just increasing at a slower pace.

The BoE will be watching the latest GDP figures closely as it decides whether to lower its base rate further in the second half of the year.

The central bank cut the base rate from 5.25% to 5% in August, before holding them at this rate again in September.

Professor Khawaja said: "This revision may have implications for monetary policy.

"A lower growth rate, combined with persistent inflation, could complicate the balancing act between supporting economic growth and controlling inflation."

He said that for policymakers, this tweak to figures "emphasises the need for continued support" for growth.

This is particularly important in sectors showing weakness.

He added: "It may also influence fiscal policy decisions in the upcoming budget considerations.

“The UK economy is still growing, but this revision highlights the fragility of the recovery. It reinforces the need for businesses to remain agile and prepared for a potentially slower growth environment than initially anticipated."

High street banks and lenders use the BoE base rate to set their own interest rates on mortgages, loans and savings accounts.

If it comes down, interest rates on mortgages, loans and savings accounts tend to fall too.

Mortgage lenders also tend to bring down rates in anticipation of the base rate falling.