Retailers and film industry deliver British GDP growth of 0.3 per cent in second quarter

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Growth picked up slightly in the second quarter of 2017 (Source: Getty)

The British economy expanded in line with expectations in the second quarter of 2017, as retailers and the film industry delivered a slight improvement from weaker growth earlier in the year.

UK GDP grew by 0.3 per cent in the three months to June, according to the Office for National Statistics (ONS).

The dominant services sector, which grew by 0.5 per cent, accounted for most of the growth, the government's statisticians said.

Read more: Retail sales rise gives glimmers of hope to British economic growth

The biggest single contributor to headline GDP growth was the retail trade, which saw sales bounce back during a warmer second quarter. Meanwhile the film industry delivered a 0.07 percentage point contribution to growth, the second largest, as the sector's output expanded by 8.2 per cent.

However, despite recent survey evidence showing production expanding at the fastest rate in more than two decades, manufacturing proved to be a negative contributor to overall growth. Manufacturing fell by 0.5 per cent in the second quarter, while the decline in construction was even sharper, at 0.9 per cent.

The figures confirm a marked slowdown in the UK economy during 2017, after GDP growth expanded by only 0.2 per cent in the first quarter of the year.

Responding to the figures chancellor Philip Hammond said the government is "not complacent" and that it needs to "focus on restoring productivity growth".

The resilience of UK growth in the second half of 2016 surprised many economists, but since then consumer spending has been weighed down as price inflation has outstripped wage increases. Inflation hit 2.9 per cent in the year to May, as the effects of the devaluation of sterling since last year's EU referendum passed through. Meanwhile average weekly earnings grew by only 1.8 per cent.

Read more: Sterling dips as inflation falls sharply to 2.6 per cent

Inflation fell back to 2.6 per cent in June, although the difference in inflation and wages is still large, and any re-acceleration in price rises could cause further damage to consumer spending, said Suren Thiru, head of economics at the British Chambers of Commerce.

“The pick-up in growth in the second quarter could prove to be a high point for the UK economy this year," he said. "Inflation is likely to resume its upward trajectory in the coming months and this could trigger a sharper economic slowdown by increasing the squeeze on consumer spending – a major driver of UK economic growth.

He added: "Rising inflation together with continued uncertainty over the longer-term impacts of Brexit is also likely to stifle investment intentions."

Over the second quarter growth in GDP per head, which takes into account the growing population, was meagre, at only 0.1 per cent during the quarter, the ONS said.

The sluggish growth makes any movement by the Bank of England to raise interest rates a year after its post-Brexit vote stimulus at its meeting next week unlikely, according to David Owen, chief European financial economist at Jefferies.

He said: "We know that given the chance they will reverse last August’s 0.25 per cent bank rate cut, but the economy has to be growing faster than 0.2 to 0.3 per cent a quarter, or wages have to be accelerating."

Sterling edged lower against the US dollar after the data was released to trade just above $1.301 at the time of writing. It had risen to above $1.304 ahead of the figures' publication.

Read more: IMF downgrades UK growth forecast

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