City of London skyline on June 10, 2024 in London, United Kingdom. The City of London is a city, ceremonial district and local government district that contains the main central business district CBD of London. The City of London is colloquially known as the Square Mile.
Mike Kemp | In picture | Getty Images
LONDON — Britain’s economy grew by 0.4 percent in May, flash figures released by the Office for National Statistics showed on Thursday. The announcement sent the British pound to its highest level in four months against the U.S. dollar.
Gross domestic product exceeded the 0.2% monthly growth forecast by Reuters in a poll of economists.
The British economy emerged from a mild recession in the first quarter of the year, but the recession plateaued in April.
The country’s key service sector posted sustained growth of 0.3% in May, as manufacturing and construction recovered from losses to rise 0.2% and 1.9% respectively.
Sterling was up 0.05% against the US dollar, at $1.2859 at 7:17 a.m. in London – the highest level for the British currency since March 8, 2024, according to data from LSEG.
The broad recovery will be welcomed by the newly elected Labour Party as Prime Minister Keir Starmer begins his first week in office.
Goldman Sachs last week raised its growth forecast for the UK after the landslide victory of left-of-centre Labour in the country’s general election. The party campaigned on a platform focused on boosting economic growth, housing and planning.
The party’s large parliamentary majority and pro-business message have led analysts to generally view the government positively on UK assets.
Ashley Webb, an economist at Capital Economics in the UK, said in a note that the recent trend of increases in UK GDP in recent months – apart from the lack of growth in April – “supports the idea that the twin brakes on activity of higher interest rates and higher inflation are starting to fade.”
UK price increases have cooled from a 41-year high of 11.1% in October 2022, all the way to the Bank of England’s 2% target in May this year. The performance has raised expectations of a forthcoming rate cut from the Bank of England.
Still, the BOE remained cautious at its June meeting, even after its peers at the European Central Bank made their own rate cuts, warning that key indicators of ongoing inflation in the UK remained “elevated.”
It is now up to the new government to build momentum behind the latest economic growth figures, Muniya Barua, deputy director of industry body BusinessLDN, said in emailed comments.
“With public finances under pressure, ministers should complement recent announcements on growth-enhancing measures by prioritising high-impact, low-cost measures that together can leverage much-needed private investment,” Barua said, citing a review of the apprenticeship scheme and the abolition of stamp duty on share transactions.
New Chancellor of the Exchequer Rachel Reeves said last week that Labour would introduce mandatory housing construction targets, lift the ban on new onshore wind farms in England and reform planning rules. On Wednesday, she announced the launch of a £7.3 billion ($9.4 billion) national wealth fund aimed at attracting private sector investment in British infrastructure projects.
Businesses are now awaiting Labour’s first fiscal statement, which is not expected until mid-September, 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 in turn could revive their desire to invest,” James said.
“However, it will take some time for this to have an effect and until we better understand what is going to happen, it is unlikely we will see a meaningful acceleration in GDP growth,” she added.