Weak growth to continue as Brexit weighs on economy

The UK's weak start to the year is set to continue as Brexit uncertainty and a squeeze on household budgets takes their toll, economists have warned after latest quarterly GDP figures showed sluggish growth.

The growth figure marks a slight improvement on the first quarter's reading of 0.2%. Picture: John Devlin
The growth figure marks a slight improvement on the first quarter's reading of 0.2%. Picture: John Devlin

GDP growth of 0.3 per cent in April to June was marginally up on the 0.2 per cent seen in the first quarter, when inflation dealt a blow to consumer spending, but well down on the 0.7 per cent recorded in the last three months of 2016.

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The initial estimate from the Office for National Statistics (ONS) covered the three months after Britain formally notified Brussels of its intention to leave the European Union in Theresa May’s Article 50 letter of 29 March.

The second-quarter performance was underpinned by the services sector, with output expanding by 0.5 per cent, up from 0.1 per cent for the quarter before driven largely driven by the retail and the film industry.

However, the construction and manufacturing industries held back the economy, falling by 0.9 per cent and 0.5 per cent respectively for the period.

Darren Morgan, ONS head of GDP, said the economy had experienced a “notable slowdown” in the first half of the year.

“While services such as retail and film production and distribution showed some improvement in the second quarter, a weaker performance from construction and manufacturing pulled down overall growth.”

Rain Newton-Smith, the CBI’s chief economist, said it expects growth to remain “lukewarm“ over the next couple of years.

“Providing businesses with certainty and stability has never been more important,” she said.

“A limited transition period as we leave the EU where the UK stays in the single market and a customs union until a final deal is in force, would help create a bridge to a new trading arrangement. It would give businesses the confidence they need to invest, expand and create jobs.”

Sebastian Burnside, chief economist at RBS, said the figures showed how the squeeze on household budgets was already affecting the economy and “how much more is to come”.

“Families are finding inflation is eating into their income and the response from spending is starting to be seen. Output from the retail and leisure sector has barely grown at all in the last six months, whereas in the run up to Christmas it was expanding at around 6 per cent.

“It will take more than six months of restraint to restore sustainable growth however.”

The second-quarter estimate comes after a series of downgrades from economists who are anticipating GDP to slow in the coming years as Britain embarks on its EU divorce.

PwC expects GDP to grow by 1.5 per cent in 2017, revising down a previous estimate of 1.6 per cent growth.

Credit rating agency Moody’s has also warned that the UK economy could be tipped into recession if Britain fails to land a deal with the 27-nation bloc.