UK Economy Grows in 3 Months Pre-Brexit

GDP grew 0.6% in the three months to the end of June after rising 0.4% in the first quarter of the year. This was the 14th consecutive quarter of positive growth

Morningstar News Team 26 August, 2016 | 11:17AM
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The UK economy expanded at a faster pace than previously thought in the three months prior to the Brexit vote, the Office for National Statistics has revealed.

Gross domestic product grew 0.6% in the three months to the end of June after rising 0.4% in the first quarter of the year. This was the 14th consecutive quarter of positive growth since the first three months of 2013. On a yearly basis, GDP rose 2.2%.

Nancy Curtin, chief investment officer at Close Brothers Asset Management said that while the figures were an improvement on the first quarter, growth in the British economy was subdued as businesses put spending decisions on hold ahead of the EU membership referendum.

“With the post-referendum picture not yet clear cut, investors will be watching economic data more closely than ever in the coming months. However, better than expected July retail and jobs data suggests that the Brexit bogeyman isn’t quite as scary as once thought, with consumer spending robust, and lower sterling supporting exports and industrial production,” she said.

“But, it’s by no means a completely positive picture. Services PMIs provide less encouraging reading, suggesting a more mixed economic outlook.”

Curtin joined other commentators in expressing the view that it was simply too soon to draw conclusions about the real impact of Brexit.

Jonathan Chitty, investment analyst at Brown Shipley said that the latest figures put output now around 8% higher than the pre-financial crisis peak.

“It is important to note, however, that the reading covers the three months to June 30, and as such provides us with little colour on how the UK is performing post-referendum,” he said. “In short, the UK was open for business in the second quarter, but whether this continues later in the year remains to be seen.”

On the production side, services output advanced 0.5% and industrial production gained 2.1% as previously estimated in the second quarter. Meanwhile, construction output dropped 0.7% instead of 0.4% fall published previously.

The expenditure-side breakdown of GDP showed that household expenditure climbed 0.9%, while government spending fell 0.2%. Another report from ONS showed that the index of services climbed 2.4% in June from the previous year. The largest contribution to total growth came from business services and finance, which contributed 1.1 percentage points.

What Should We Expect Next?

Ana Thaker, Market Economist at PhillipCapital UK said that all eyes would be on the next set of economic data, and expected weakness to come in the form of a slowdown in business investment.

“Markets are particularly sensitive at the moment, and are likely to remain so until Article 50 is invoked and we begin the official Brexit process, so poor GDP data will weigh heavily on sterling if weaker than expected despite positive signs elsewhere in the economy,” she said.

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