Strong GDP estimates conceal signs of Brexit contraction

Jake Cordell
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Look closer, and the holes are starting to appear
Look closer, and the holes are starting to appear (Source: Getty)

The UK economy grew by 0.6 per cent in the second quarter of the year according to a new estimate from the National Institute of Economic and Social Research (Niesr) published today.

The think tank reckons growth will have picked up from the sluggish 0.4 per cent clocked in the first three months of the year, but warned the UK economy was already slowing ahead of the referendum.

It says a bumper April, which could have benefited from a mini-rebound after a disappointing February and March plagued by fears over China and turmoil on the financial markets, could be skewing the figures.

"At first glance this represents a robust state of quarterly growth for the UK economy. However, the quarterly figure masks an important within-quarter pattern," said Jack Meaning a research fellow at Niesr.

Meaning added: "Our monthly estimates suggest that April saw a large expansion in GDP, which then stagnated in May. The estimate for June is one of an intensifying contraction across the board ... What it does suggest is that when April drops out of the three month calculation, we should see a quick deterioration of growth."

Analysts have been paying close attention to the very limited data which has been released covering the UK economy's performance since the 23 June vote. Confidence surveys and indicators such as car sales and purchasing managers' indexes (PMI) point to a marked slowdown in activity in the days immediately surrounding the referendum. How long that sentiment will stick around remains to be seen, with the likes of the International Monetary Fund (IMF) and Standard and Poor's (S&P) predicting the longer the political vacuum lingers, the worse the economy will fare.

Next week the Bank of England is expected to cut interest rates to at least 0.25 per cent in a bid to stoke the economy. Most economists, according to a Bloomberg poll, are forecasting a slight recession next year, driven by a crash in investment and a dip in consumer spending. The consensus estimate is for the economy to expand by just 0.4 per cent across 2017.