UK economy grows by just 0.3 per cent in Q2

Latest official figures have today revealed that the UK economy grew by just 0.3 per cent in the three months to June.

The Office for National Statistics (ONS) said the marginally positive growth was down to the services sector, particularly retail, and booming film industry which grew 8 per cent in the second quarter.

The two top performing areas more than offset falls in output in the manufacturing and construction sectors, the data showed.

The meagre growth did represent an increase on the first quarter of the year, when it was 0.2 per cent, but represented a “notable slowdown” in growth from last 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,” said Darren Morgan, ONS head of national accounts.

“The economy has experienced a notable slowdown in the first half of this year,” he added.

Howard Archer, chief economic advisor to the EY ITEM Club, said he was concerned that the latest muted growth was “entirely reliant on the services sector”.

Looking ahead, he said: “The second half of 2017 looks likely to remain very hard work for the UK economy, resulting in ongoing limited growth.

“The EY ITEM Club sees GDP growth limited to 1.5 per cent in 2017, which would be the weakest performance since 2012 and down from 1.8 per cent in 2016.

“Consumer spending is likely to be impacted through the second half of the year by an ongoing appreciable squeeze on purchasing power (indeed real incomes growth is likely to remain negative for some months to come despite June’s dip in inflation). It is also notable that there was a sharp dip in consumer confidence in June as uncertainties over the outlook were magnified by the general election result.

“Meanwhile, worries over a stuttering economy and uncertainties over Brexit and the UK political situation are likely to weigh down on business investment.

“On the positive side, net trade should contribute significantly to growth as exports benefit from healthy global growth (including robust Eurozone activity) and a very competitive pound.

“The EY ITEM Club forecasts GDP growth to be just 1.3 per cent in 2018, but this masks an expected pick-up in activity in the second half of the year.

“The squeeze on consumers should progressively ease during the year due to inflation falling back markedly, as the impact of sterling’s sharp fall drops out. However, earnings growth is expected to remain relatively muted and employment is essentially flat.

“Businesses are likely to remain cautious with their investments during 2018, but much will depend on how Brexit negotiations proceed. If a transition agreement looks increasingly likely as the year progresses, this would be supportive to investment.

“Net trade should make a positive contribution to UK growth in 2018, as exports benefit from a still very competitive pound and decent global growth.”