In the first half of the year the UK economy grew at a faster pace than many economists believed was possible for the whole of 2024.
Official figures show a rise of 0.6% in the second quarter and 0.7% increase in the first three months of the year, pushing the growth rate above the 1% mark some analysts had said at the start of the year was the likely maximum rate of expansion.
It would be satisfying for Rachel Reeves if she knew there was some momentum in the data. The chancellor is preparing her first budget and is hopeful that the Office for Budget Responsibility (OBR), the Treasury’s independent forecaster, will examine the figures and conclude that her arrival at No 11 Downing Street coincides with a better economic outlook and with that, higher tax receipts.
Yet it’s possible all we have seen is a bounce back from last year’s recession and the strength of the rebound is not enough to boost the long-term outlook.
The figures for June bear this out. They showed growth juddered to a halt.
That growth was zero in a single month should not be overly alarming when there are so many one-off factors that can influence the outcome. Monthly figures can bounce around, which is why the Office for National Statistics prefers to focus on the quarterly data.
In this case it could be a sign that consumers are financially exhausted and either unable or unwilling to carry on spending..
The services sector, which covers about three-quarters of activity in the economy, suffered a 0.1% drop brought on by a drop in sales across the retail and wholesale trades.
It is an unexpected fall because, reading across from the inflation figures and the level of pay rises, consumers should be in a strong position.
Inflation has fallen from a peak of 11.1% in October 2022 to 2% this year (before a modest tick upwards to 2.2% in July) while wages have remained above 5%. For almost a year, wages adjusted for inflation have been rising, putting more money in the pockets of the average household.
However, in the UK, the government and the Bank of England focus on a measure of inflation that excludes housing costs. There is no space in the consumer prices index (CPI) for rental cost inflation or the rise in mortgage costs.
When mortgage interest bills have jumped for millions of people and rents are rising at a record level, it seems bizarre that policymakers think they have a sense of how well the nation is coping with inflation when major elements are excluded.
For many people, a broader measure of inflation that included housing costs would have shown how they have been hit harder than the CPI reveals and that they have very little spare cash.
The Institute for Fiscal Studies has also shown that inflation rose much more for people on low and middle incomes at the height of the cost of living crisis, denying them an increase in spending power during 2022 and 2023 and pushing many deeper into debt.
It means that the next six months could be tougher than the first. And June may be a harbinger, not a blip.
