From Breakingviews - UK GDP jump offers little relief to BoE
0.2% in the second quarter compared to the previous three months. That’s a modest acceleration but not enough to force the Bank of England to hike rates again in September.
Jeremy Hunt, Britain’s finance minister, was quick to claim credit for the GDP numbers. That’s understandable given that the Conservative government is struggling in the polls. Less rational is the sharp jump in sterling and UK bond yields, fuelled by market expectations that the BoE will now have to raise rates in September. The pound was 0.26% higher against the dollar at $1.27 after the figures , while the yield on 10-year government bonds went from 4.37% to 4.45% .
Sure, June GDP numbers were strong but they were flattered by the absence of the bank holiday that had depressed May’s figures. Growth in manufacturing – a key driver of June’s performance – may have been helped by the one-off easing of supply snags in the drug industry. And warm weather also assisted.
Britain remains the only country from the Group of Seven leading economies where GDP is still below pre-pandemic levels. Output has grown by just 0.4% since January 2022 – the weakest performance in 65 years outside of a recession, according to the Resolution Foundation. With a fragile economy and interest rates at a 15-year high of 5.25%, the BoE needs to tread carefully. Its next move depends more on next week’s inflation and wage numbers than today’s GDP data.
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