Strong June Growth in UK Economy Driven by Extra Bank Holiday
Despite economic uncertainties and global challenges, the United Kingdom’s economy surprised many by achieving significant growth of 0.5% in June 2023. This positive outcome was unexpected, especially considering the slight contraction of 0.1% in May 2023. Several factors, including an additional national bank holiday in May, played a crucial role in boosting output and driving the economy forward.
The latest data from the Office for National Statistics (ONS) sheds light on the UK’s economic performance. June’s figures marked a strong recovery after a growth of 0.2% in April 2023, showcasing the economy’s ability to bounce back in tough times. Additionally, the impressive growth in June contributed to an overall 0.2% increase in GDP over the three months leading up to June 2023.
Leading the recovery were several sectors, with the production sector standing out by achieving robust growth of 1.8% in June 2023. This impressive expansion followed a slight decline of 0.6% in May. A closer look reveals that manufacturing played a key role, surging by 2.4%. This surge in manufacturing output was the strongest since November 2020 and was largely attributed to recovering from reduced output in May. The extra bank holiday for the coronation of King Charles III was a significant driver behind this manufacturing rebound.
Positive developments in external demand, such as increased export orders or global market conditions, may have contributed to the manufacturing sector’s growth. Improvements in international trade and economic conditions can stimulate manufacturing activity as businesses ramp up production to meet higher demand from both domestic and international markets.
At the same time, the construction sector played a significant role in the economic recovery, reporting growth of 1.6% in volume terms for June 2023. This revival was powered by increased levels of new work (2.0%) and repair and maintenance (1.1%). After facing three consecutive periods of negative growth, the construction sector benefited from favourable weather, potentially boosting productivity. Notably, the main contributors to this growth were infrastructure projects and non-housing repair and maintenance.
Within the services sector, which saw a 0.2% growth in June 2023, the information and communication industry emerged as a strong force, contributing 1.3% to service output growth. This uptick signalled a broader sector rebound, with notable growth seen in wholesale and retail trade, repair of vehicles and motorcycles, which grew by 0.8% in June. This increase was largely driven by a notable rise in new car registrations. The accommodation and food services segment also experienced a significant revival, posting growth of 1.5%. This resurgence was mainly attributed to favourable weather conditions and an increase in live events, boosting business turnover in the sector.
As discussions about interest rates continue, Mary Daly, President of the San Francisco Federal Reserve Bank, highlighted the importance of evaluating inflation data and carefully considering rate adjustments. While recent inflation data looks positive, the final decision on potential rate changes is still under ongoing assessment.
While the UK’s strong economic performance in June 2023 underscores its resilience, it’s important to acknowledge the broader global economic picture. Germany’s challenges with weak trade relations with China and declines in manufacturing and construction prompted the European Central Bank to reconsider its rate hike plans. This move emphasises how interconnected global economic dynamics are.
In the foreign exchange market, there were notable currency fluctuations. The GBP/EUR exchange rate hit a two-week low of 1.1527, while GBP/USD reached a five-day low of 1.2667. In contrast, EUR/USD reached a 10-day high of 1.1064.
The impressive economic performance of the UK in June 2023 highlights the nation’s resilience and adaptability in a rapidly changing global economic environment. As stakeholders and experts closely monitor various economic indicators, the potential effects of these developments on sustained recovery are being closely scrutinised.
Further reading: ONS