The UK economy continues to confound predictions of a recession for now. However, the words ‘for now’ are doing plenty of heavy lifting.
AJ Bell’s Russ Mould said: “Strength in the pharmaceutical and car manufacturing sectors was a key driver in helping GDP for the second quarter confound expectations for a period of stagnation.
“The economy also bounced back strongly in June from a May period affected by the extra Bank Holiday associated with the King’s coronation. Hot weather helped pubs and restaurants, though a drizzly and cooler July will likely dampen this trend when the next monthly GDP figures are announced in September.
“Before we roll out the garlands it is worth observing the UK remains one of the few major economies to reach its pre-pandemic size. This is a story of resilience rather than dynamism.
“The durability of the economy is a double-edged sword as it may lead the Bank of England to keep taking a hard line on interest rates. Given the lagged impact of rate increases, which have already seen borrowing costs increase from near zero to more than 5% in a little over 18 months, this could result in a more significant downturn at some point down the line.
“On the other hand, a lower than anticipated inflation number next week could build confidence in a Goldilocks scenario where the economy is blowing neither too hot or too cold and the Bank can start to dial back the pressure on rates and avoid inflicting much more pain without risking losing control of prices again.”
