City of London skyline on June 10, 2024 in London, United Kingdom. The City of London is a city, ceremonial county and local government district that contains the primary central business district of London’s CBD. The City of London is widely referred to simply as the City is also colloquially known as the Square Mile.
Mike Kemp | In the pictures | Getty Images
LONDON – The UK economy grew 0.4% in May, flash figures released by the Office for National Statistics showed on Thursday, with the British pound jumping to a four-month high against the US dollar after the announcement.
Gross domestic product beat estimates for a 0.2% monthly expansion, according to a Reuters poll of economists.
The British economy emerged from a shallow recession in the first quarter of the year, then stagnated in April.
The country’s dominant services sector posted continued growth of 0.3% in May as output in manufacturing and construction bounced back from losses to rise 0.2% and 1.9%, respectively.
Sterling was 0.05% higher against the U.S. dollar at $1.2859 by 7:17 a.m. in London — the highest level for the British currency since March 8, 2024, according to LSEG data.
A broad revival will be welcomed by the newly elected Labor Party as Prime Minister Keir Starmer enters his first week in office.
Goldman Sachs upgraded its growth forecast for the UK last week following a landslide victory for left-wing Labor in the country’s general election. The party campaigned on a platform that focused on promoting economic growth, housing and planning.
The party’s large parliamentary majority and business communications led analysts to describe the government as broadly supportive of British assets.
In a note, Ashley Webb, a UK economist at Capital Economics, highlighted the recent trend in UK GDP growth in recent months – with the exception of the lackluster growth in April – “supporting the idea that the dual drag on activity due to higher interest rates and higher inflation is beginning to weaken.”
UK price growth has cooled from a 41-year high of 11.1% in October 2022 to the Bank of England’s 2% target in May this year. The performance raised expectations of an upcoming interest rate cut by the Bank of England.
But the BOE continued to strike a cautious tone at its June meeting, even after its peers at the European Central Bank began their own rate-cutting journey, warning that key indicators of the persistence of UK inflation “remained elevated”.
It will now be up to the new government to build momentum behind the latest economic growth data, Muniya Barua, deputy chief executive of industry campaign group BusinessLDN, said in emailed comments.
“With public finances under strain, ministers should follow the spate of recent pro-growth statements and prioritize high-impact, low-cost measures that together could help unlock much-needed private investment,” Barua said, referring to the apprenticeship overhaul. system and scrap stamp duty on stock transactions.
New Chancellor of the Exchequer Rachel Reeves said last week that Labor would introduce mandatory targets for housebuilding, lift the ban on new onshore wind farms in England and reform planning rules. On Wednesday, it announced the launch of a £7.3 billion ($9.4 billion) National Investment Fund to attract private sector investment in UK infrastructure projects.
The business community is now awaiting Labour’s first fiscal statement, which is expected in mid-September at the earliest, Lindsay James, investment strategist at Quilter Investors, said in a note.
This “should make both tax and spending plans clearer. This will allow businesses to plan ahead better and could in turn revive their appetite for investment,” James said.
“However, this would take some time to play out, and until we have a better understanding of what’s to come, we are unlikely to see any meaningful acceleration in GDP growth,” she added.