UK economic growth slows down as Iran war pushes up energy prices
GDP expanded by 0.4% in three months to June, but analysts warn growth is ‘likely to fade’ UK economy shows surprising resilience Business live – latest updates Economic growth slowed in the second quarter of the year, as the disruption unleashed by the Iran war began to take its toll, official figures show. The Office for National Statistics (ONS) said GDP expanded by 0.4% in the three months to…
The UK's economic growth slowed in the second quarter of 2023 due to the disruption caused by the Iran war, according to official figures from the Office for National Statistics (ONS). The GDP expanded by 0.4% in the three months to June, down from 0.6% in the first quarter, in line with expectations from City economists. While this slowdown was less severe than initially feared, analysts predict that the UK economy's momentum will wane in the coming months.
Chief economist at KPMG, Yael Selfin, noted that consumers have managed to withstand various shocks since the start of the year, but the second half of the year is likely to be weaker. The new Chancellor, John Healey, is set to present his first budget on October 28th.
Services output grew by 0.5% in the second quarter, while construction expanded by 0.3%. Industrial production remained flat. Within the services sector, information and communication businesses saw the strongest growth, up by 2.7%, driven by an increase in computer programming.
GDP growth in June was 0.3%, better than expected, with warmer weather and World Cup-related spending boosting demand. However, economists anticipate that rising energy costs will dampen growth throughout the remainder of 2023. Oil and gas prices surged following Donald Trump's attacks on Iran in February, though consumer utility bills were protected by the energy price cap until July, after which it increased by 13%.
With high prices persisting, Healey may face pressure to provide further support for households and businesses during the winter.
Andy Burnham, the shadow chancellor, announced a VAT cut for electricity bills last month, but indicated that he would like to implement more measures. The British Chambers of Commerce warned of continued high business costs due to global headwinds from the Iran conflict. Inflation figures for July are expected to show a higher reading than June's 2.6%, reflecting rising utility bills. Sustained high inflation may prompt the Bank of England to raise interest rates.
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