The UK has become the fastest-growing economy in the G7 so far in 2024, with a 0.6% expansion in the second quarter, outpacing major economies such as the US and France. This marks a strong recovery for the UK, which grew by 1.3% in the first six months of the year, more than double France’s 0.6% growth and ahead of the US’s 1.1%.

The growth, described by Yael Selfin of KPMG as a “gangbusters” performance, was driven largely by the services sector, with particular strength in law firms, IT businesses, and scientific research. Despite this positive economic news, Chancellor Rachel Reeves has hinted that tax rises may still be necessary due to the £22bn public finance gap and the legacy of low economic growth over the past decade. Reeves has emphasized the importance of “tough decisions” to rebuild the economy, particularly in her upcoming October 30 Budget.

While the UK’s growth stands out, Germany’s economy contracted by 0.1%, and France’s 0.3% growth lagged behind. Italy expanded by 0.2%, and the wider EU matched France’s 0.3% growth.

However, some of the UK’s performance is attributed to the recovery from a mild recession at the end of 2023. Additionally, surging immigration has bolstered overall growth, but when adjusted for population, GDP per head rose by just 0.3% in the second quarter.

Economists, such as Jake Finney from PwC, have warned that the government needs to address rising worklessness to sustain this momentum. Bringing economically inactive people back into the workforce could boost growth by a quarter percentage point annually over the next decade. Finney also noted that meeting Sir Keir Starmer’s goal of achieving the highest G7 per-capita growth for two consecutive years will be challenging without significant policy reforms, especially regarding labour market participation.

The Bank of England’s recent interest rate cut to 5% could stimulate further short-term growth, though it may also prolong the period of higher rates, which could weigh on medium-term growth prospects. Despite these mixed signals, the UK’s robust performance in the first half of 2024 provides the government with some economic breathing room as it navigates fiscal and welfare challenges.