The U.K. economy grew surprisingly strongly in the second quarter of 2023, as a manufacturing rebound in June rescued a period that seemed doomed to contraction.
Manufacturing output rose 2.4 percent in June, pushing up overall industrial output by 1.8 percent, thanks to receding energy prices and the ongoing process of supply chain repair after the pandemic. The rebound was in part due to a ‘catch-up’ effect after the coronation of King Charles III in May, and the accompanying bank holiday.
The numbers are the latest sign of the economic resilience in Britain that has withstood an aggressive tightening of monetary policy by the Bank of England over the last 18 months. As such, the data make it easier for the Bank to keep on raising rates if it deems it necessary to bring down inflation, which remains well above target. The growth numbers are, however, of less direct importance for the Bank than figures for wage growth and inflation, which are due next week.
The pound reacted positively to the news, rising 0.3 percent to $1.2708 in the hour after the data was released. U.K. government bond yields also rose sharply, as traders revised their previous view that a looming slowdown would force the Bank to end its tightening cycle in the near future. The yield on the benchmark two-year Gilt, which is closely correlated to expectations for official rates, rose 0.12 percent to 5.01 percent.