Economic growth upgraded as services defy Brexit fears

Output in Britain's powerhouse services sector 'grew strongly' in July, defying expectations of a substantial slowdown in the wake of the Brexit vote.

Economic growth was upgraded as figures showed a strong performance for the all-important services sector. Picture: John Devlin
Economic growth was upgraded as figures showed a strong performance for the all-important services sector. Picture: John Devlin

Official figures showed that services output expanded by 0.4 per cent in the first month after Britain voted to leave the European Union, driven by rising retail sales, a robust performance from the film industry and computer programming.

The update came as the Office for National Statistics (ONS) revised up its reading for the UK economy, with gross domestic product (GDP) growing 0.7 per cent in the second quarter, up from a previous estimate of 0.6 per cent for the period.

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The ONS said the revision was triggered by a better performance from services and investment in the three months to June.

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However, Britain’s yawning current account deficit – which measures the amount of money flowing in and out of the economy – grew to £28.7 billion in the second quarter, up from £27bn in the first three months of the year.

Darren Morgan, head of GDP at the ONS, said the fresh data shows there is “no sign of an immediate shock to the economy” from the EU referendum result.

He added: “Despite some very weak indicators appearing in the immediate aftermath of the referendum, estimates gathered by the ONS from more than 23,000 firms now suggest that the services sector, which accounts for three quarters of the economy – in fact grew strongly in July.

“Further information also suggest that the whole economy also grew slightly more strongly in the months before polling day than previously thought.”

Economists were forecasting services sector output to slow to 0.1 per cent in July, from 0.2 per cent in June, following a shock fall in output from the services purchasing managers’ index (PMI) in the first month after the Brexit vote.

It comes as official figures for the construction industry showed that output flat-lined in July, while manufacturing saw a sharp month-on-month contraction over the period, falling 0.9 per cent.

HiFX economist Andy Scott said: “With unemployment at its lowest levels since before the financial crisis and wages growing, consumer demand has been very robust, as demonstrated in the overnight consumer confidence data, which surged back to pre-Brexit levels.”

A six-point jump in the GfK consumer confidence index took it to minus 1, a level last seen in June, driven by improved expectations for personal finances, perceptions of the general economic situation and intentions to make major purchases.

The index measuring changes in personal finances during the last 12 months increased by two points this month and the forecast for the next year increased by three points – taking both to a point higher than this time last year.

However, Scott added: “Market sentiment remains fragile with the upcoming US election and worries over the unknown and temperamental Donald Trump, as well as fears that Deutsche Bank could be heading towards some sort of government rescue.”