UK Q2 GDP grew 0.4% as expected, slowing from Q1. Services led while construction fell. The data keeps the BoE on a gradual path. Sterling edged higher.
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The UK economy expanded 0.4% in the second quarter, matching the consensus estimate and decelerating from the 0.6% pace in the first three months of the year, the Office for National Statistics reported Thursday.
June output rose 0.2% month-on-month, beating expectations for no growth. The services sector contributed 0.1 percentage points, led by information and communication as well as administrative services. Construction fell 0.2% on the month, its second straight decline. Industrial production was flat.
The data keeps the Bank of England on a gradual path on rates. The Monetary Policy Committee cut the base rate by 25 basis points to 4.75% in August, the first reduction since the pandemic-era tightening cycle. Governor Andrew Bailey has said the committee will move "gradually" and that decisions depend on incoming data.
Sterling ticked up after the release. GBP/USD traded at 1.2845, up from 1.2825 just before the print. Two-year gilt yields held near 3.82%. Markets price roughly a 50% chance of another cut at the September meeting, according to Sonia swap rates.
The ONS noted the UK economy has grown for three consecutive quarters, the longest run since early 2022. Yet the quarterly pace has slowed from 0.7% in Q3 2024 to 0.4% now. Real GDP per capita, a measure of living standards, remains below its pre-pandemic level.
Traders said the data did little to shift the near-term rate outlook. "It's in line. It's not weak enough to force a September cut, not strong enough to delay one," a sterling trader at a European bank said. "The market will focus on Jackson Hole next week and on the August CPI release."
One detail stood out: services output in June was 0.4% above its pre-pandemic level. Industrial production remained 2.1% below. The divergence between the services-led recovery and the stagnant goods sector has been a persistent feature of the post-Covid UK economy, the ONS data showed.
The next major UK data point is July CPI, due Aug. 17, followed by the Aug. 21 public sector finances print. The BoE's next scheduled decision is Sept. 18.
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