UK Economic Growth Revised Upward as Household Incomes Rise and Business Investment Surges

UK households’ incomes grew at a stronger pace than previously estimated during the first half of the year, according to revised official data.

The upward revision in income per head to 1.1% between January and June reflects a stronger-than-expected expansion in economic growth, highlighting the resilience of the UK economy amid ongoing geopolitical tensions in the Middle East.

The Office for National Statistics (ONS) reported that gross domestic product (GDP) grew by 0.5% in the April-to-June quarter, surpassing the previous estimate of 0.4%. This revision indicates that the UK economy expanded at a pace matching that of the United States during the first six months of the year, following a 0.6% growth rate in the first quarter.

Analysts suggested that a positive shift in consumer sentiment, dubbed a “Burnham bounce,” may have contributed to the strong performance, following the announcement of the Makerfield byelection in May, which paved the way for the former mayor of Manchester to become prime minister.

The ONS also noted that households managed to channel some of their income growth into savings, with the savings rate rising from 8.6% in the first quarter to 8.8% in the second quarter.

Thomas Watts, a fund manager at private bank Julius Baer, described the latest figures as “yet more positive news for the new administration,” building on previous data that underscored the UK economy’s resilience since the onset of the conflict in February.

The upgraded growth forecast provides a significant boost for Chancellor John Healey as he prepares to deliver his first budget next month.

Alongside rising household incomes, business investment remained robust, increasing by 1.8% in the second quarter and standing 5.2% higher than the same period a year ago.

Kathleen Brooks, research director at XTB, described market sentiment as “upbeat” following the revisions, noting that the data “suggests that the UK economy was resilient to the effects of the Iran war, the energy price surge, and the rise in borrowing costs.”

She elaborated: “Stronger services growth and rising household spending boosted the figure. This is fairly typical of the UK economy, 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.”

Currency markets responded positively to the revised economic data. Traders speculated that the robust growth rate might lead the Bank of England to consider the economy “running hot,” potentially necessitating higher interest rates to cool inflation, which currently stands at 3.1%—well above the central bank’s 2% target.

Sterling reached a six-week high against the euro and climbed 0.4% against the US dollar to a one-week peak of $1.3292. Against the euro, sterling hit its highest level since mid-August, with the euro falling nearly 0.3% to 85.43p.

UK government bond yields eased in response to the stronger economic outlook and declining global oil prices. Two-year UK bond yields fell by 0.05 percentage points to 4.86%, while ten-year yields dropped four basis points to 5.356%.

Oil and gas prices experienced significant volatility since the conflict began. Although a summer ceasefire initially calmed markets, ongoing uncertainty over peace negotiations has driven Brent crude prices back above $100 per barrel, though they have eased slightly in recent days.

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