UK growth revised up as exports and investment withstand energy shock

Britain’s economy expanded faster than initially estimated in the second quarter, supported by business investment and stronger exports despite the energy price shock linked to the Iran war. The Guardian Economics reported that revised Office for National Statistics figures put April-June GDP growth at 0.5%, up from an earlier estimate of 0.4%.

The revision followed growth of 0.6% in the first quarter and meant the UK matched the US growth rate over the first half of the year. Household income per person increased by 1.1% between January and June, a stronger rise than previously calculated. Households also saved a larger share of their income, with the savings rate climbing from 8.6% in the first quarter to 8.8% in the second.

Business investment rose by 1.8% over the second quarter and stood an estimated 5.2% above its level a year earlier, according to the ONS figures cited by The Guardian Economics. Kathleen Brooks, research director at XTB, attributed the GDP improvement to stronger services activity and household spending, while highlighting investment and an export-led improvement in trade as surprises.

The figures offer support to chancellor John Healey ahead of his first budget next month. Analysts cited by the outlet said the economy had proved resilient since the US-Israel war on Iran began in February, despite higher energy prices and borrowing costs. Oil and gas prices have risen sharply during the conflict. Brent crude returned above $100 a barrel as confidence in peace efforts weakened after a summer ceasefire, although prices have recently eased.

Sterling gained as traders considered whether stronger activity could encourage the Bank of England to raise interest rates, with inflation at 3.1% against its 2% target. The pound rose 0.4% to $1.3292, a one-week high, and reached a six-week high against the euro.

UK government bond yields nevertheless fell alongside lower global oil prices. Two-year yields declined by 0.05 percentage points to 4.86%, while 10-year yields dropped four basis points to 5.356% on Wednesday.