UK economic growth slows as Iran war drives up energy prices
UK GDP grew 0.4% in the second quarter, down from 0.6% in the first, as disruption from the Iran war began affecting the economy. Analysts say the economy has nonetheless proven more resilient than feared.
Official figures from the Office for National Statistics show the UK economy grew 0.4% between April and June, matching economists' expectations but slower than the 0.6% recorded in the first quarter.
KPMG chief economist Yael Selfin noted that consumers have weathered a series of shocks this year remarkably well, though she cautioned that momentum is likely to fade in the second half of the year.
Sector breakdown
Services output rose 0.5% in the quarter and construction grew 0.3%, while industrial production, including manufacturing and energy, was flat. Information and communication businesses posted the strongest growth at 2.7%, driven by an upturn in computer programming. GDP for June alone rose 0.3%, beating economists' forecast of no growth, with warm weather and World Cup-related spending credited for boosting retail, hospitality and advertising revenues.
Energy cost pressures
Oil and gas prices surged after Donald Trump's attacks on Iran at the end of February, though household bills were shielded until July by the energy price cap, which then jumped 13%. That is putting pressure on new chancellor John Healey to offer further support to households and businesses ahead of winter, before he presents his first budget on 28 October.
Andy Burnham announced a VAT cut on electricity bills last month but said he would like to go further. The British Chambers of Commerce warned that high costs continue to weigh on long-term business growth. July inflation figures, due next week, are expected to come in above June's 2.6%, which could add pressure on the Bank of England to raise interest rates.
