Economy increases 0.5% in June – business industry reaction

14th August 2023

Latest GDP figures have shown that the economy grew 0.5% in June and 0.2% between April to June.

The struggling manufacturing sector experienced a modest rebound in the second quarter and with the economy benefitted from the effects of May’s extra bank holiday. The Bank of England said last week that it expected annual growth of 0.5 per cent this year and next, a modest performance that will help the economy to avoid a recession.

ONS Director of Economic Statistics Darren Morgan said “The economy bounced back from the effects of May’s extra bank holiday to record strong growth in June. Manufacturing saw a particularly strong month with both cars and the often-erratic pharmaceutical industry seeing particularly buoyant growth.”

“Services also had a strong month with publishing and car sales and legal services all doing well, though this was partially offset by falls in health, which was hit by further strike action. Construction also grew strongly, as did pubs and restaurants, with both aided by the hot weather.”

“Across the quarter as a whole, GDP grew a little with widespread growth across manufacturing – aided by falling raw material prices – computer programming and hospitality.”

Kitty Ussher, Chief Economist at the Institute of Directors, said “This is an encouraging set of data showing an economy performing strongly in June. There was decent growth in both retail and manufacturing, helped by a positive rebound effect from the previous month when activity had been reduced due to the extra bank holiday for the King’s Coronation.”

“Looking across the full three months of the second quarter, we also see economic growth picking up compared to earlier in the year, although today’s initial estimates are subject to revision. In particular, car production has benefited from falling input prices, and consumer demand has also proved resilient, helped by decent weather in June.

“However the quarterly data also shows a worrying decline in business investment in ICT and machinery following the expiring of the government’s super-deduction allowance at the end of March. It also shows falls in expenditure on scientific R&D, advertising and market research, which could be an early indicator of difficulties ahead.”

TUC General Secretary Paul Nowak said “The chancellor is asleep at the wheel while our economy is going nowhere. Stagnant growth puts jobs at risk and holds down pay and conditions for those who remain in work.”

“The chancellor must stop hiding behind the Bank of England and take responsibility for the serious economic failure unfolding on his watch. Around the world, other countries are delivering far higher investment and stronger protections for workers – while asking those with the broadest shoulders to pay a fairer share. There is no reason why the UK can’t follow suit.”

“After 13 years of Conservative government, the high pay high productivity economy we all desperately need remains out of reach. Instead of sitting back and hoping for the best, the government needs to take responsibility and act.”

Suren Thiru, Economics Director at ICAEW said  “This underwhelming rebound in quarterly UK GDP highlights the worrying fragility in our economy as inflation, higher interest rates and waning customer demand weigh on activity.”

“While GDP bounced back strongly in June, this reflects more the reversal of the squeeze on output from the extra bank holiday in May, rather than a meaningful improvement in our growth trajectory. The UK is entering a more challenging period where, with stubbornly high inflation, soaring interest rates and unseasonably wet weather, GDP is likely to weaken considerably in the third quarter, despite a boost from lower energy bills.”

“While interest rates will probably rise again in September, additional tightening risks further destabilising an already brittle economy by further suffocating consumer spending and businesses investment.”