The UK economy grew handsomely in the second quarter of the year, official data out this week is expected to show, though analysts suspect it will be the last piece of good economic news for the foreseeable future.
GDP growth is pitted to come in at around 0.5 per cent for the three months to the end of June, up from 0.4 per cent in the first quarter, when the Office for National Statistics (ONS) releases its first estimates of the size of the UK economy on Wednesday.
“While heightened uncertainty had been expected to take a toll on second quarter growth,” Howard Archer of IHS Markit said, “the bulk of the available evidence indicates that GDP growth was relatively resilient.”
Second quarter figures are expected to be buoyed by a bumper April, as confidence rushed back to businesses and households after a tumultuous February and March in the financial markets. Other official figures, including strong pre-referendum unemployment numbers, rebounding industrial production and robust consumer spending, are expected to push growth up from a disappointing 0.4 per cent in the first three months of the year.
However, surveys since the UK’s shock decision to vote against EU membership “indicate a big loss of post-referendum momentum,” according to Commerzbank’s Peter Dixon. Archer added it was “likely to be some considerable time” before the UK economy grows at a similar pace again.
Analysts expect the UK to expand by just 0.4 per cent in the whole of 2017 following the vote for Brexit, with opinion divided about whether - and when - the UK will fall into contraction. Shock purchasing managers' index (PMI) scores out last week sent the pound plunging and raised the prospect the UK economy could already be shrinking.
“The economy is likely to flirt with recession,” said Axa’s David Page, summing up the economic outlook for the next 12 months.
Economists said the extent of the UK’s slowdown in the short-term would depend on the response from politicians and, crucially, the Bank of England over the rest of the year. Markets fully expect the Bank to slash interest rates when it meets on 4 August, and analysts at Berenberg said there was a 60 per cent chance of its bond-buying quantitative easing programme also being ramped up.
New chancellor Philip Hammond has indicated he is prepared to unleash new fiscal stimulus, probably in the form of infrastructure spending and a temporary cut to VAT, in the autumn to prop up the economy.
Separately, growth figures from the Eurozone and the United States - out at the end of the week - are expected to confirm the two areas’ divergence. The US is predicted to bounce back from its weak first quarter growth of 1.1 per cent on an annualised basis to record an expansion rate at more than double that pace. Growth in the Eurozone, however, will halve, according to the consensus estimate, from 0.6 per cent a quarter to 0.3 per cent.