MONEY TALKS
UK economy grew less than first thought GDP figures show – what it means for your money
Read below to find out what it all means for your finances
THE UK economy grew less than first thought, revised official figures show.
Gross Domestic Product (GDP) increased 0.5% in the second quarter of this year, not the 0.6% previously estimated by the Office for National Statistics (ONS).
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Growth was mainly driven by a rise in the services sector, but the manufacturing and construction industries industry dragged down the headline figure, the ONS said.
The economy still grew between April and June, but by less then previously thought.
GDP grew 0.7% in the previous three months from January to March, and that previously revised up from 0.6%.
GDP is one of the main indicators used to measure the performance of a country's economy.
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When GDP goes up, the economy is generally thought to be doing well.
Negative growth often brings with it falling incomes, job cuts and lower consumption.
The UK dipped in to a technical recession at the end of 2023 after two quarters of the economy shrinking, though it was considered "mild" compared to others in recent history.
The fresh figures published this morning show that the UK economy continued its recovery from recession at the end of last year, just at a slightly slower pace than previously thought.
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The ONS also said that GDP across 2023 is now estimated to have increased by 0.3%, up from the previous estimate of 0.1%.
Stronger income data, including pay for employees and profits of businesses, helped boost the overall figure.
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Liz McKeown, director of economic statistics at the ONS, said: "Today's updated GDP figures for 2023 and 2024 include new annual survey data, VAT returns and updated information about the relative size of each industry for the first time.
"However, after taking on these improvements, the quarterly growth path across the last 18 months is virtually unchanged."
Ms McKeown also added that according to the latest data, household savings continue to increase and are now at their highest rate since the Covid-19 lockdowns.
More recent data shows that the economy has been flatlining, with no growth recorded in both June and July.
It prompted Chancellor Rachel Reeves to say she was “under no illusion about the scale of the challenge” the country faces, and that “change will not happen overnight”.
“Two quarters of positive economic growth does not make up for 14 years of stagnation,” she added.
While the sector is still growing, it is facing more headwinds than previously estimated
Professor Sarwar Khawaja
Experts say that today's revised figures show the pace of economic recovery may have been "slightly overstated".
Professor Sarwar Khawaja, chairman of the executive board at Oxford Business College, said: “The downward revision of quarterly growth from 0.6% to 0.5% sounds like a minor book-keeping change, but it is more significant than it might appear at first glance.
“It suggests that the initial optimism about the pace of economic recovery may have been slightly overstated.
“The revision primarily stems from a less robust performance in the services sector than initially thought, with growth adjusted from 0.8% to 0.6%."
He added that due to services accounting for around 80% of the UK economy, the latest adjustment has "considerable implications".
"While the sector is still growing, it is facing more headwinds than previously estimated," he said.
Other experts noted that the level of household saving during the second quarter was “far higher” than in the years prior to the pandemic, when the ratio sat between 5% and 6%.
The household saving ratio is estimated at 10% in the latest quarter, up from 8.9% over the start of the year, meaning people were keeping more of their disposable income locked into savings.
“Higher interest rates may well be one of the factors behind that, encouraging saving relative to consumption; and so with a lower path for rates ahead, there is the possibility of some unwind,” said Sandra Horsfield, an analyst at Investec.
She added that higher wages put “enough fuel in the tank to keep consumer spending moving up” in the future.
Jeremy Hunt, the shadow chancellor, said the revised GDP figures “once again discredit Labour’s fabricated narrative on the economy”.
“With the Budget only one month away, she must not use it to further damage business confidence with higher regulation and higher taxes,” he said.
What it means for your money
GDP is a measure of the economic output of companies, individuals and governments and how healthy an economy is.
A healthy economy is one where GDP is growing but if it stalls or is falling, it's bad news for businesses and consumers.
Most economists, politicians and businesses want to see GDP rising steadily.
This is because it usually means people are spending more, more tax is paid to the government and workers get better pay rises.
A healthy economy usually means lower inflation, rising employment, less poverty, and more money in your pocket.
Negative growth often brings with it falling incomes, job cuts and lower consumption.
The Bank of England (BoE) uses GDP as one of the key indicators when it sets the base interest rate.
This decides how much it will charge banks to lend them money, and is a way to try to control inflation and the economy.
So, for example, if prices are rising too fast, the BoE could increase that rate to try to slow the economy down. But it might hold off if GDP growth is slow.
Lower inflation is good because it means prices don't rise as fast, putting less financial pressure on households.
The Consumer Prices Index (CPI) rate of inflation stood at 2.2% in August, stalling from July following a slight rise from 2% the previous month.
However, this is still significantly lower than October 2022, when it peaked at 11.1% following soaring wholesale energy prices.
It's important to note when inflation falls that doesn't mean prices have stopped rising, they are just increasing at a slower pace.
The BoE will be watching the latest GDP figures closely as it decides whether to lower its base rate further in the second half of the year.
The central bank cut the base rate from 5.25% to 5% in August, before holding them at this rate again in September.
Professor Khawaja said: "This revision may have implications for monetary policy.
"A lower growth rate, combined with persistent inflation, could complicate the balancing act between supporting economic growth and controlling inflation."
He said that for policymakers, this tweak to figures "emphasises the need for continued support" for growth.
This is particularly important in sectors showing weakness.
He added: "It may also influence fiscal policy decisions in the upcoming budget considerations.
“The UK economy is still growing, but this revision highlights the fragility of the recovery. It reinforces the need for businesses to remain agile and prepared for a potentially slower growth environment than initially anticipated."
The next Bank of England base rate review is scheduled for Thursday, November 7.
High street banks and lenders use the BoE base rate to set their own interest rates on mortgages, loans and savings accounts.
If it comes down, interest rates on mortgages, loans and savings accounts tend to fall too.
Mortgage lenders also tend to bring down rates in anticipation of the base rate falling.
How to protect your finances
If you're worried about your finances, there are steps you can take to try and keep your cash safe.
Having an emergency savings pot is helpful in times of high inflation, to help cover any outgoings that might have increased unexpectedly.
You might consider asking for a pay rise at work, but there are no guarantees your company is in a position to offer one.
Be sure to make savings where you can - shop around for better deals on your car and home insurance, as well as broadband and mobile phone.
Save money by going to a cheaper supermarket, shopping for own-brand rather than premium products, and looking out for yellow-sticker bargains.
Make a budget and check your bank statements for any forgotten subscriptions you might be wasting money on.
Making extra cash in your spare time can help too, picking up a side hustle or selling your old clothes could give you a boost.
A woman recently told The Sun her £7,000 a month side hustle lets her make cash from her sofa - but some think it's a boring chore.
From being paid to watch movies to recycling old till receipts here are 20 easy side hustles you can do at home and make money.
When money is tight, it can be tempting to ignore debts - but this will only make your financial situation worse.
Stay on top of what you owe and always repay priority debts.
There are also plenty of organisations where you can seek debt advice for free.
These include:
- National Debtline - 0808 808 4000
- Step Change - 0800 138 1111
- Citizens Advice - 0808 800 9060
You should also check what benefits you are eligible for.
Entitledto's free calculator works out whether you qualify for various benefits, tax credits and Universal Credit.
If you don't want to register, consumer group MoneySavingExpert.com and charity StepChange both have benefits tools powered by Entitledto's data that let you save your results without logging in.
There is also emergency funding available for struggling households, which is dished out by local councils.
The Household Support Fund is designed to help those in most need with payments towards the rising cost of food, energy, and water bills.
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Help available varies, but you could get free cash, food vouchers, and help for bills like rent and energy.
You could also get similar help from your council under the welfare assistance scheme.
How to get free debt help
There are several groups which can help you with your problem debts for free.
- Citizens Advice - 0800 144 8848 (England) / 0800 702 2020 (Wales)
- StepChange - 0800138 1111
- National Debtline - 0808 808 4000
- Debt Advice Foundation - 0800 043 4050
You can also find information about Debt Management Plans (DMP) and Individual Voluntary Agreements (IVA) by visiting MoneyHelper.org.uk or Gov.UK.
Speak to one of these organisations - don't be tempted to use a claims management firm.
They say they can write off lots of your debt in return for a large upfront fee.
But there are other options where you don't need to pay.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected].
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