UK economy grew by 0.6% before Brexit vote

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Britain’s economy grew by a faster than expected 0.6% in the second quarter as businesses appeared to shrug off Brexit jitters in the runup to the 23 June referendum.

Growth between April and June was stronger than the 0.4% achieved in the first quarter, boosted by the best performance from the industrial sector in almost 17 years according to the Office for National Statistics.

Economists were forecasting weaker growth of 0.4% in the second quarter. They warned however this was likely to be as good as it gets for the UK economy, with a sharp slowdown predicted in the coming months.

Joe Grice, chief economist at the ONS, said there was little evidence that concern about a possible Brexit vote had a negative impact on the economy before the referendum.

“Continued strong growth across services, particularly in retailing, reinforced by healthy growth in the manufacture of cars and pharmaceuticals, boosted output in the second quarter.

“Any uncertainties in the runup to the referendum seem to have had a limited effect. Very few respondents to ONS surveys cited such uncertainties as negatively impacting their businesses.”

The chancellor Philip Hammond said the latest official snapshot of the UK economy showed that it was fundamentally strong, adding he was ready to take action to support the economy following the Brexit vote.

“It is clear we enter our negotiations to leave the EU from a position of economic strength,” he said in a statement.

“Those negotiations will signal the beginning of a period of adjustment, but I am confident we have the tools to manage the challenges ahead, and along with the Bank of England, this government will take whatever action is necessary to support our economy and maintain business and consumer confidence.”

Economists warned that growth would be lower in the coming months, with some predicting contraction in the third quarter.

Martin Beck, senior economic advisor to the EY Item Club, said the numbers represented “one last hurrah” for the economy before it entered a weaker and more turbulent period.

The data showed the economy was performing better in the earlier part of the second quarter than the latter part. At the time of the first estimate of gross domestic product, the ONS has less than half the data content that it will ultimately rely on for the final estimate. As a result, the numbers it gives for June are a forecast and subject to revision.

Beck said: “The monthly figures point to a significant loss of momentum through the quarter which means that the launchpad for the third quarter was already soft, even before we factor in any Brexit effects.

“The lack of momentum as the economy entered Q3 means that the chances of a negative reading for the current quarter are relatively high.”

The Bank of England warned before the referendum a Brexit vote could trigger a technical recession, defined by two consecutive quarters of negative growth.

It has hinted that it will unveil a package of measures designed to boost confidence among households and businesses as the UK faces a period of prolonged uncertainty following the vote.

The Bank’s monetary policy committee is expected next week to cut interest rates to a new all-time low of 0.25%, from 0.5%, having disappointed expectations of a rate cut at its July policy meeting.

A breakdown of the second-quarter GDP figures showed that industrial production jumped by 2.1% – the strongest growth since the third quarter of 1999 - following a 0.2% contraction in the first quarter. The manufacturing sector was the biggest driver of rise, with output rising 1.8% over the quarter.

Output in the services sector, which accounts for more than three quarters of the economy, increased by 0.5%, while construction fell by 0.4%.

Annual growth accelerated to 2.2% in the second quarter, from 2% in the first.

Frances O’Grady, TUC general secretary, said: “It’s good news that growth strengthened in the last quarter before the referendum. The priority now is protecting growth from the fall in business confidence, and the risks to future investment, following the Brexit vote.”

Powered by Guardian.co.ukThis article was written by Angela Monaghan, for theguardian.com on Wednesday 27th July 2016 11.40 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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