Official data revisions show that UK household income grew more rapidly than initially estimated during the first half of the year. Income per head rose by 1.1% between January and June, a trend attributed to sustained economic growth despite regional hostilities in the Middle East persisting for over seven months.
The Office for National Statistics (ONS) adjusted the second-quarter GDP growth figure to 0.5%, up from the previous estimate of 0.4%. Combined with a 0.6% expansion in the first quarter, the data indicates the UK matched the US growth rate for the first six months of the year. This performance places the UK near the top of the G7, outpacing Germany, France, and the US, while trailing only Canada, which recorded 1.3% growth. Ahead of Germany, France and the US and just behind Canada, which topped the poll with a growth rate of 1.3% in the first and second quarters, the sharp increase in GDP per head in the first half of the year put the UK near the top of the G7 leader board. Sterling was at its highest since mid-August, with the euro down nearly 0.3% at 85.43p, against the euro.
Chancellor John Healey enters his first budget next month with this improved economic outlook. Analysts have suggested that a so-called “Burnham bounce” in public and market confidence followed the May byelection of the former Manchester mayor as prime minister, potentially contributing to the positive trend.
The ONS reported that households redirected some of their increased income into savings, with the savings rate climbing to 8.8% in the three months ending in June, up from 8.6% in the previous quarter. Business activity also proved robust, as firms increased investment by 1.8% during the second quarter, representing a 5.2% rise compared to the same period last year.
Market analysts note that the economy appears remarkably resilient to challenges, including borrowing cost increases, energy price volatility, and regional conflicts. Kathleen Brooks of XTB highlighted that stronger services growth and household spending were key drivers, while a surprising surge in exports and business investment further bolstered the figures. According to thomas Watts, a fund manager at the private bank Julius Baer,, The figures were “yet more positive news for the new administration” after previous data had shown the resilience of the UK economy since the start of the US-Israel war on Iran in February. Which is service based; the real surprise was the strength of business investment and an improvement in the trade figures, which showed a boost in exports.”, this is fairly typical of the UK economy.
However, the strength of the economy has triggered speculation among traders that the Bank of England may perceive the environment as “running hot.” With inflation currently at 3.1%—exceeding the central bank’s 2% target—investors are considering whether higher interest rates might be required to stabilize the market.
Financial markets reacted with enthusiasm as sterling climbed to a six-week high against the euro and a one-week high of $1.3292 against the US dollar. In the bond market, yields shifted downward, with two-year yields at 4.86% and 10-year yields at 5.356% as of Wednesday. These movements reflect a tempered outlook on global oil prices, which have fluctuated as traders weigh the potential for a lasting peace deal against ongoing supply concerns regarding Brent crude. While 10-year UK bond yields were four basis points lower at 5.356% on Wednesday, two-year UK bond yields were down 0.05 of a percentage point at 4.86%. Traders have lost confidence in efforts to secure a peace deal and sent Brent crude prices back above $100 a barrel, though they have eased in recent days, after a ceasefire in the summer.
