GDP figures show UK economy still sluggish after Brexit

The UK economy’s lacklustre performance extended into the second quarter of 2017, with growth only modestly picking up.

The expansion of 0.3 per cent - in line with estimates - followed a 0.2 per cent pace in the three months through March. Publishing the figures on Wednesday, the Office for National Statistics said the economy experienced a “notable slowdown in the first half of this year.”

Growth in the second quarter was led by services, which rose 0.5 per cent and were the sole positive contributor. Production and construction were a drag, and agriculture had zero impact.

Within services, retail and the film industry - both production and cinema releases - were the main drivers. Film making in the UK has jumped since 2015, linked in part to tax benefits.

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Even with the improvement in retailing in the second quarter, the sector posted flat growth over the six months through June. Consumers have struggled this year as faster inflation - reflecting the pound’s decline since the Brexit vote - puts a strain on their pockets.

The latest numbers reinforce the view that the strong performance by the economy immediately after the Brexit vote a year ago hasn't been sustained into 2017. After a striking loss of momentum at the start of this year, the International Monetary Fund this week cut its 2017 growth forecast to 1.7 per cent from 2 per cent.

Economists in a Bloomberg survey see the economy slowing to 1.6 per cent this year and 1.3 per cent in 2018.

The second-quarter GDP reading compares with a 0.4 per cent pace predicted by the Bank of England, where policy makers are divided on the outlook for the economy and how to respond.

While a majority of BOE officials voted to keep interest rates at a record low last month, some pushed for an increase. They cited the pickup in inflation in the past year and said investment and trade would compensate for weaker consumption.

The release is one of the last major economic data points for Governor Mark Carney and the Monetary Policy Committee to digest before their next policy announcement on August 3rd.

Reports earlier this month showed inflation unexpectedly slowed in June and retail sales picked up. The better spending figures were largely due to summer weather.

The GDP estimate is based on about 45 per cent of the data that the ONS will ultimately gather for the quarter.

On an annualised basis, comparable to US data, the UK economy grew 1.2 per cent in the second quarter. The US is forecast to have expanded 2.5 per cent, according to a Bloomberg survey before data on Friday.

-Bloomberg