The UK economy grew by 0.6% in the second quarter, the Office for National Statistics reported on Thursday, signaling a steady but cautious rebound from recession.

The growth figure matched the expectations of economists surveyed by Reuters and followed a 0.7% expansion in the first quarter.

Economic activity was stagnant in June, aligning with the Reuters poll, as the dominant services sector saw a slight decline of 0.1%. However, construction and production output increased by 0.5% and 0.8%, respectively.

The UK economy has shown slight but consistent growth each month this year, as the country gradually recovers from a shallow recession. GDP was flat in April, with wet weather dampening retail sales and construction activity.

On an annual basis, the economy was 0.9% larger in the second quarter, surpassing a forecast of 0.8%.

“These figures confirm that the UK’s recovery from recession gained momentum in the second quarter, despite strike action and adverse weather leading to flat growth in June,” said Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales.

Thiru noted that the strong second-quarter performance was largely driven by temporary factors, such as a sharp drop in inflation and a boost to consumer spending from events like Euro 2024, rather than a significant improvement in the UK’s underlying growth trend.

However, the pace of growth is expected to slow in the second half of the year due to weaker wage growth, high interest rates, and ongoing supply challenges, Thiru added.

UK inflation rose to 2.2% in July, according to data released Wednesday by the ONS, slightly below the consensus forecast of 2.3%. The headline inflation rate had been at the Bank of England’s 2% target for the previous two months, contributing to the central bank’s decision to cut interest rates by 25 basis points at the beginning of August.

Analysts described the July inflation figures as supportive of continued monetary easing for the remainder of the year, despite persistent inflation in the services sector.

Over the April-June period, UK wage growth, excluding bonuses, cooled to a two-year low but remained relatively high at 5.4%.

Richard Carter, head of fixed interest research at Quilter Cheviot, stated that lower interest rates should help stimulate more economic growth by making borrowing more affordable for households and businesses in the coming months, though he cautioned that it would take time for these effects to materialize.

Following Thursday’s GDP release, the British pound edged higher, rising by 0.25% against the U.S. dollar and 0.2% against the euro as of 12:17 p.m. in London.

Outlook Improves

Several institutions, including the International Monetary Fund, Goldman Sachs, and the Bank of England, have recently raised their growth forecasts for the UK economy. The IMF now expects 0.7% growth this year, up from a previous estimate of 0.5%.

Factors contributing to the improved outlook include declining inflation and proposed reforms to planning and business regulations under the new Labour government, which took office in July. Prime Minister Keir Starmer and Finance Minister Rachel Reeves have emphasized that boosting economic growth will be central to their policy agenda, with a goal for the UK to achieve the fastest per capita GDP growth among the Group of 7 nations.

“The new government fully understands the scale of the challenge we have inherited after over a decade of low economic growth and a £22 billion gap in the public finances,” Reeves said in a statement on Thursday.

Labour is expected to deliver its first budget on October 30, with analysts anticipating that the announcement will provide more clarity on the government’s fiscal strategy and plans for taxation and public spending.

Given this, “it is unlikely that we will see a significant acceleration in GDP in the short term,” said Quilter Cheviot’s Richard Carter.

“For now, the economy is expected to continue on its moderate growth path, supported by wage growth that remains ahead of inflation and the recent easing of monetary policy,” he added.