The economy of Great Britain shows signs of long-awaited recovery, however, the war between the USA and Israel against Iran and high energy prices could put this economic spurt at risk.
Official data published on Thursday showed that the economy of Great Britain grew by 0.4% in the second quarter after growing by 0.6% in the first quarter. Business investments over the same period increased by 1.7%, although economists surveyed by Reuters had forecast a decline of 0.5%.
These indicators keep Great Britain on track for the strongest growth among the G7 countries for the second quarter in a row, said on Thursday the chief economist of Deutsche Bank in the UK Sanjay Raja. According to him, the latest data brought the annual equivalent of growth rates for the first half of the year to “impressive” 2%.
“Some slowdown remains likely,” added Raja, especially because higher fuel prices will put pressure on household incomes. At the same time, he noted: “But for the first time in a long time, we now see moderate growth risks.”
However, the economic prospects for Britain’s new Prime Minister Andy Burnham do not look cloudless. In April, the International Monetary Fund warned that the war between the USA and Israel against Iran, which currently shows no signs of ending, could hit Britain’s growth prospects harder than the economy of any other developed country.
Great Britain largely depends on oil and gas imports, making it particularly vulnerable to rising energy prices. In addition, in recent years, the country has faced a sharper increase in commodity inflation than most of its economic partners.
Growth may slow sharply
On Wednesday, Bloomberg reported that representatives of the Ministry of Finance presented Burnham with a worst-case scenario. According to the Ministry of Finance’s estimates, the growth of the British economy could slow down to 0.3% next year if disruptions in the work of the Strait of Hormuz continue.
The Ministry of Finance did not respond to a request from CNBC for comment.
What supports the British economy
The chief European macroeconomist at T. Rowe Price, Tomasz Wieladek, noted that there are encouraging signs of a change in the main source of growth in the British economy: from an increase in government spending to an improvement in the performance of the private sector.
At the same time, the assumption that the conflict in the Middle East has not caused serious damage to the British economy, “probably sounds too good to be true,” added Wieladek.
According to him, “usually growth in the first two quarters is significantly stronger than in the second half of the year.”
Shaniel Ramjee, co-head of multi-assets at Pictet Asset Management, emphasized that the main growth was concentrated in Britain’s dominant services sector.
“Hot weather helped the services sector, but at the same time, despite the global infrastructure boom, Britain’s construction sector and industrial production are declining compared to last year,” said Ramjee in an interview with CNBC.
Source: CNBC
