UK economic growth confirmed at 0.6% in second quarter
April to June figures included data for a short period after the EU referendum on 23 June
A rise in consumer spending helped the UK economy power ahead in the months running up to the EU referendum, with little sign the vote hurt investment or the wider economy, official statisticians have said.
The Office for National Statistics confirmed a previous estimate that GDP growth picked up to 0.6% in the second quarter from 0.4% in the first quarter.
The figures will be a boost to the chancellor, Philip Hammond, who has repeatedly asserted that Britain entered the post-referendum period from a position of strength. But economists said the second quarter would come to represent a high point for this year, with growth set to grind to a halt over coming months as the EU vote hurts business confidence.
Much will hinge on how consumers fare over coming months. Signs since the referendum suggest households suffered an initial drop in sentiment but carried on spending.
Commenting on the latest GDP figures, Ian Stewart, chief economist at Deloitte, said: “The UK entered the post-referendum period with good momentum. Household spending accounts for roughly two-thirds of the economy and is growing at the fastest rate in eight years. We see few signs that Brexit has derailed the consumer recovery.”
The ONS also noted there had been little effect on the wider economy in the run-up to the EU referendum on 23 June. The April-to-June figures included data for a short period after the vote.
The ONS chief economist Joe Grice said: “Today’s figures reinforce the picture that the economy grew strongly in April, and then remained relatively flat in May and June.
“Business investment grew in the second quarter, partly thanks to companies spending on transport equipment such as cars and planes. However, levels of investment remained lower than at the same period last year.
“Our survey returns, which include the period leading up to and immediately following the referendum, show no sign so far of uncertainty having significantly affected investment or GDP.”
The statistics office provided more detail on what drove growth in this GDP update, with business investment rebounding 0.5% in the second quarter, compared with a fall of 0.6% in the first quarter.
Household spending rose 0.9% after a rise of 0.7% in the first quarter. It was the strongest quarterly growth in spending for almost two years and adds to evidence that strong employment, low interest rates and low inflation are buoying consumer sentiment.
In year-on-year terms, household spending was up 3%, the strongest growth since the end of 2007, before the financial crisis. Business investment was down 0.8% on a year earlier. Overall GDP was up 2.2% on the year.
The strength in consumer demand contrasted with another disappointing quarter for trade. Net trade continued to drag on GDP growth as the gap between exports and imports widened further in the second quarter. Exports edged up 0.1% in the second quarter but imports grew by a much stronger 1%.
Simon Wells, chief UK economist at HSBC, said there was a chance exporters would get a boost from the drop in the pound since the referendum, which makes UK goods more competitive overseas. But it was not clear how soon that would happen.
“Trade has weighed heavily on growth every year since 2011and the first half of 2016 suggests a turnaround is not likely, unless the post-referendum fall in sterling has an unusually quick and fast impact,” he said.
The 0.6% headline figure was as most City economists had been expecting, according to the consensus forecast in a Reuters poll taken last week. But many expect growth will slow in this July to September quarter.
There were already signs that the economy was losing momentum before the vote, based on figures for individual months in the second quarter, said Scott Bowman, UK economist at Capital Economics. The consultancy expects growth to fall to zero in the third and fourth quarters of this year.
“Admittedly, consumer spending appears to have held up fairly well since the referendum. But survey measures of business activity have taken large hits and a significant portion of firms say they will invest less as a result of the Brexit vote,” he said.
Nina Skero, senior economist at the Centre for Economics and Business Research, highlighted potential pressures on consumers.
“Whether consumers will continue to spend at the same level in 2017 is rather uncertain. A weaker pound will translate into more expensive imports and therefore higher inflation. As many companies either postpone hiring or freeze wages in response to increased uncertainty, the labour market will also cool somewhat. Finally, slower house price growth or even price declines will weigh on consumer confidence,” she said.