UK economic growth sped up ahead of Brexit vote
July 27, 2016, 6:00 pm    

The UK economy grew by 0.6% in the three months to the end of June, as economic growth accelerated in the run-up to the vote to leave the EU.

Second-quarter gross domestic product grew faster than expected, up from 0.4% growth in the previous quarter, the Office for National Statistics said.

Any uncertainty ahead of last month`s referendum seemed "limited", ONS said.

However, by far the strongest growth was in April, followed by a sharp easing off in May and June.

On a yearly basis the economy grew by a healthy 2.2%.

The pick-up in economic activity was boosted by the biggest upturn in industrial output since 1999, particularly from car factories and pharmaceutical firms.

`Position of strength`

ONS chief economist Joe Grice said that as well as the industrial gains, there was also "strong growth across the services sector, particularly retailing".

"Any uncertainties in the run-up to the referendum seem to have had a limited effect," he said. "Very few respondents to ONS surveys cited such uncertainties as negatively impacting their businesses."

Economists, including those at the Bank of England, had estimated second-quarter growth would be about 0.5%.

Chancellor Philip Hammond said the better-than-expected figures showed the fundamentals of the UK economy were "strong".



"It is clear we enter our negotiations to leave the EU from a position of economic strength," Mr Hammond said.

But he also told the BBC`s economics editor Kamal Ahmed it was "far too early to say how the economy is responding" to the referendum result.

John McDonnell, Labour`s shadow chancellor, said the figures bore little relation to the economic position of workers.

"Today`s GDP figures provide a stark contrast with the grim news on real earnings which remain 10% below their 2007 level," he said.

"The Tories` failed austerity policy has produced a lost decade for earnings with ordinary households experiencing the worst decline in living standards in living memory."

Industrial output, including manufacturing, grew by 2.1% in the quarter. The services sector, the largest part of the UK economy, grew 0.5%, while construction and agriculture fell 0.4% and 1% respectively.

In April industrial production jumped 2.1% month-on-month, but then dropped 0.5% in May and rose only 0.2% in June.

Services also started the quarter strongly, rising 0.6% in April, before dropping 0.1% in May and growing by only 0.1% in June.

`Brexit concerns`

Analysts and business groups warned against using the second-quarter figures - which only included estimates of one week following the 23 June referendum - to measure the impact of the Brexit result.

It is "far too soon to draw firm conclusions" about the UK`s future growth prospects, the British Chambers of Commerce (BCC) warned.

"The significant contribution made by the manufacturing sector is particularly encouraging, but the improvements were from a low base, and the UK economy remains reliant on the service sector to drive growth," the BCC said.

Ben Brettell, a senior economist at Hargreaves Lansdown, said the GDP figures "can`t be taken as evidence of the current climate".

"However, what they do show is an absence of pre-Brexit concerns, meaning that if the forecast downturn does materialise, at least we start from a position of relative strength," he said.



`Bogeyman`

A snapshot of the economy in the weeks after the referendum - from the closely-watched Purchasing Managers Indexes (PMIs) - suggested there had been a sharp fall in economic activity following the Leave vote.

The economy seems to be heading towards a "significant deterioration" in the second half of 2016, according to the National Institute of Economic and Social Research.

Connor Campbell, an analyst at Spreadex, agreed, saying: "Just because predictions of a slowdown pre-referendum appear to have been false, last week`s early glimpse at the Markit PMIs shows that the post-Brexit impact is in no way a bogeyman conjured by bitter Vote Remainers."

A separate survey released on Wednesday suggested that retail - one of the growth sectors in the second quarter - has suffered following the referendum.

Retail sales volumes have declined more rapidly in July than at an time in the last four years, according to a survey by the CBI.



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