The UK economy ended the second quarter on a slightly firmer footing than first thought, according to final data from the Office for National Statistics (ONS). Gross domestic product (GDP) grew by 0.5% in the three months to June, revised up from an earlier estimate of 0.4%. The upgrade came as export volumes were marked significantly higher and services output edged up.
The revision follows a 0.6% expansion in the first quarter, meaning the UK has now recorded two consecutive quarters of growth. While the pace is modest, the upward adjustment suggests the economy carried a little more momentum into the summer than previously estimated.
What drove the revision?
The ONS said the updated figures reflect its annual measurement upgrades, which incorporate new information and often reshuffle the composition of growth. This time, the services sector—which accounts for the bulk of UK economic activity—was revised up to 0.6% growth for the quarter, helped by professional and other business services.
Exports were a standout, with volumes revised up to 2.8% growth. That is a notable jump from the earlier estimate and points to stronger overseas demand for UK goods and services. The improvement in exports is a positive sign for the trade balance and suggests that global demand, particularly from key trading partners, may be holding up better than initially thought.
The upward revision to growth is welcome news for the UK economy, which has faced headwinds from high interest rates and cost-of-living pressures. However, the overall picture remains one of sluggish but positive expansion rather than a rapid rebound.
What it means for investors
For everyday investors, the revised GDP figure is a modest positive. A stronger-than-expected economy can support corporate earnings, as businesses see higher demand for their products and services. It also reduces the risk of a sharp slowdown that could hurt stock prices and increase defaults on loans.
The stronger export performance is particularly relevant for investors in UK-listed companies with significant international sales. Many of the UK's largest firms, especially those in the FTSE 100, earn a large share of their revenue overseas. A pickup in export volumes could provide a tailwind for these companies, though currency movements also play a role.
However, the data also has implications for interest rates. The Bank of England has been keeping a close eye on economic growth as it decides when to cut rates. A stronger economy might give policymakers more room to hold rates higher for longer, which could affect borrowing costs for mortgages and business loans. Conversely, if growth were to falter, rate cuts could come sooner.
It's important to remember that GDP revisions are routine and often reflect methodological changes rather than a sudden shift in the economy's health. The ONS's annual updates incorporate new data sources and can alter the historical picture. Investors should view this as a confirmation of the existing trend rather than a dramatic new development.
Broader context
The UK's growth story is part of a wider global picture. Other major economies have also shown resilience, with some Asian economies reporting stronger export activity. For instance, China's factory growth accelerated in September on the back of surging export orders, and the yuan has been heading for a seventh quarterly gain as exporters convert dollars. These trends suggest that global trade is not collapsing, which bodes well for export-oriented UK businesses.
Still, the UK faces its own challenges. Inflation has cooled from its peaks, but it remains above the Bank of England's 2% target. Household budgets are still stretched, and consumer confidence is fragile. The services sector, while revised up, is not growing at a pace that would suggest a boom.
Looking ahead, investors will be watching for the next batch of economic data, including inflation figures and employment numbers, to gauge whether the modest growth momentum can be sustained. The Bank of England's next policy decision will also be in focus, as any change in interest rates could ripple through markets.
For now, the revised GDP data offers a slightly more optimistic picture of the UK economy than previously painted. It's not a game-changer, but it's a reminder that the economy is still growing, and that can be a supportive backdrop for investors with a long-term horizon.
