Quarterly GDP Ticks Up 0.4% on Resilient Consumer Spending

The economy grew slightly faster than expected in the second quarter as households kept spending despite higher borrowing costs, easing fears of an imminent downturn.

Output expanded 0.4% quarter on quarter, according to the first official estimate, beating the 0.2% consensus among economists polled by The Ledger. On an annualised basis, growth ran at roughly 1.6%, a modest but reassuring pace given the pressures weighing on the economy.

Consumer spending, which accounts for close to two-thirds of activity, rose 0.6% and did most of the heavy lifting. Services led the way, with households continuing to spend on travel, dining and healthcare even as they trimmed purchases of big-ticket goods. "The consumer is bruised but not broken," said Aditi Rao, senior economist at Northgate Research. "Real wages are finally growing again, and that is showing up at the till."

Business investment was flat, held back by weakness in manufacturing, where output has now been broadly stagnant for three consecutive quarters. Residential construction contracted a further 1.2% as elevated mortgage rates continued to bite. Net trade made a small negative contribution as imports outpaced exports.

The figures reduce the odds of a near-term recession but do little to resolve the central question hanging over the economy: how much of the pain from past rate rises is still to come. "There is a long and variable lag between policy and its effect," Rao noted. "We are not out of the woods simply because one quarter came in a touch above forecast."

Policymakers are likely to welcome the report as evidence that the economy is cooling gradually rather than stalling. A soft landing — bringing inflation to heel without triggering a sharp rise in unemployment — remains the base case for most forecasters, though few would describe it as guaranteed. The next quarterly reading, due in October, will show whether this quarter's resilience marks a genuine turning point or merely a pause on the way down.