Economy not out the woods despite bigger-than-expected jump in June, says experts

A surprise bounce in GDP will not mean much for hard-pressed families and businesses and could even lead to interest rates being hiked further, experts have warned.

Several experts said that while on the face of it the 0.5% rise in GDP in June was cause for celebration, the unexpectedly high figure could also bring consequences.

Economists had expected growth to be just 0.2% in June, according to a consensus supplied by Pantheon Macroeconomics.

"The better-than-expected GDP figures are likely to galvanise the Bank of England’s zeal to continue to raise interest rates," said David Baker, a partner at audit giant Mazars.

"The Bank will remain very concerned about the persistence of inflation and will reflect on near full employment and high wage inflation as reasons to keep policy tight, despite higher mortgage rates denting consumer confidence and business surveys still pointing to lacklustre future growth."

Suren Thiru, Economics Director at the Institute of Chartered Accountants in England and Wales, called the growth "underwhelming".

He said that the rise in June was just a rebound from May, when the coronation gave people an extra day off, rather than being a "meaningful improvement".

"This underwhelming rebound in quarterly UK GDP highlights the worrying fragility in our economy as inflation, higher interest rates and waning customer demand weigh on activity," he said.

"While GDP bounced back strongly in June, this reflects more the reversal of the squeeze on output from the extra bank holiday in May, rather than a meaningful improvement in our growth trajectory."

Thiru warned that the UK is entering a "more challenging period" where inflation remains stubborn and interest rates high.

"GDP is likely to weaken considerably in the third quarter, despite a boost from lower energy bills," he said.

David Bharier, Head of Research at the British Chambers of Commerce, added: "While the UK remains on course to avoid a technical recession, small movements in one direction or the other won’t mean much for many firms facing the toughest trading conditions in years.

"UK businesses are very adaptable, but they are looking for clear direction from the Government and the Bank of England, particularly on interest rate policy and a long-term plan to unlock investment."