The UK’s dominant services sector grew strongly in July according to the latest official data, confirming the impression that the economy has so far successfully brushed off the impact of the Brexit vote.
Services account for almost 80 per cent of UK output and the ONS said the sector grew 0.4 per cent between June and July in the wake of the 23 June vote, well ahead of the expectations of City of London analysts of 0.1 per cent growth.
This was the first tranche of “hard” data on the UK’s most important sector and had been much anticipated by economists.
“This fresh data tends to support the view that there has been no sign of an immediate shock to the economy, although the full picture will continue to emerge,” said Darren Morgan of the ONS.
No visible Brexit impact
GDP growth in the three months to June was also revised up, with the ONS seeing it rising 0.7 per cent, better than the 0.6 per cent previously estimated.
The upgrade reflected business investment coming in stronger than previously estimated, growing by 1 per cent in the quarter rather than 0.5 per cent.
The output growth of the services industry in the quarter was also revised up to 0.6 per cent from 0.5 per cent previously.
The news lifted the pound up against the dollar to $1.2990 and against the euro to €1.1612, although those gains rapidly melted away.
What experts have said about Brexit
What experts have said about Brexit
1/11 Chancellor of the Exchequer Philip Hammond
The Chancellor claims London can still be a world financial hub despite Brexit “One of Britain’s great strengths is the ability to offer and aggregate all of the services the global financial services industry needs” “This has not changed as a result of the EU referendum and I will do everything I can to ensure the City of London retains its position as the world’s leading international financial centre.”
2/11 Yanis Varoufakis
Greece's former finance minister compared the UK relations with the EU bloc with a well-known song by the Eagles: “You can check out any time you like, as the Hotel California song says, but you can't really leave. The proof is Theresa May has not even dared to trigger Article 50. It's like Harrison Ford going into Indiana Jones' castle and the path behind him fragmenting. You can get in, but getting out is not at all clear”
3/11 Michael O’Leary
Ryanair boss says UK will be ‘screwed’ by EU in Brexit trade deals: “I have no faith in the politicians in London going on about how ‘the world will want to trade with us’. The world will want to screw you – that's what happens in trade talks,” he said. “They have no interest in giving the UK a deal on trade”
4/11 Tim Martin
JD Wetherspoon's chairman has said claims that the UK would see serious economic consequences from a Brexit vote were "lurid" and wrong: “We were told it would be Armageddon from the OECD, from the IMF, David Cameron, the chancellor and President Obama who were predicting locusts in the fields and tidal waves in the North Sea"
5/11 Mark Carney
Governor of Bank of England is 'serene' about Bank of England's Brexit stance: “I am absolutely serene about the … judgments made both by the MPC and the FPC”
6/11 Christine Lagarde
IMF chief urges quick Brexit to reduce economic uncertainty: “We want to see clarity sooner rather than later because we think that a lack of clarity feeds uncertainty, which itself undermines investment appetites and decision making”
7/11 Inga Beale
Lloyd’s chief executive says Brexit is a major issue: "Clearly the UK's referendum on its EU membership is a major issue for us to deal with and we are now focusing our attention on having in place the plans that will ensure Lloyd's continues trading across Europe”
8/11 Colm Kelleher
President of US bank Morgan Stanley says City of London ‘will suffer’ as result of the EU referendum: “I do believe, and I said prior to the referendum, that the City of London will suffer as result of Brexit. The issue is how much”
9/11 Richard Branson
Virgin founder believes we've lost a THIRD of our value because of Brexit and cancelled a deal worth 3,000 jobs: We're not any worse than anybody else, but I suspect we've lost a third of our value which is dreadful for people in the workplace.' He continued: "We were about to do a very big deal, we cancelled that deal, that would have involved 3,000 jobs, and that’s happening all over the country"
10/11 Barack Obama
US President believes Britain was wrong to vote to leave the EU: "It is absolutely true that I believed pre-Brexit vote and continue to believe post-Brexit vote that the world benefited enormously from the United Kingdom's participation in the EU. We are fully supportive of a process that is as little disruptive as possible so that people around the world can continue to benefit from economic growth"
11/11 Kristin Forbes
American economist and an external member of the Monetary Policy Committee of the Bank of England argues that the economy had been “less stormy than many expected” following the shock referendum result: “For now…the economy is experiencing some chop, but no tsunami. The adverse winds could quickly pick up – and merit a stronger policy response. But recently they have shifted to a more favourable direction”
Financial traders have been lowering the expectations of another interest rate cut by the Bank of England later this year as forward-looking survey data has come in considerably better than expected.
Today’s strong post-referendum services data is likely to reinforce that trend.
“The jump in services output in July is the clearest sign yet that the Brexit vote has not pushed the economy into a recession,” said Samuel Tombs of Pantheon Macroeconomics.
The Bank of England’s latest forecast for GDP in the third quarter of the year is 0.3 per cent.
A number of City analysts have been revising away their expectations of a recession.
The strength of services looks set to continue, with the latest consumer confidence reading from GfK published today showing that confidence in September was back up to where it was immediately before the referendum, having seen a sharp dip in July.
The biggest contribution to the growth of services in July came from transport, storage and communication (up 1.6 per cent), followed by business services and finance (up 0.3 per cent).
The Chancellor Philip Hammond welcomed the latest batch of data, saying it showed “momentum” in the economy.
“We want to build on this strength as we forge a new relationship with the EU and deliver an economy that works for all. The UK is well-positioned to deal with the challenges, and take advantage of the opportunities, that lie ahead,” he said.
In separate official data, the current account deficit came in at £28bn for the second quarter, better than the £30.5bn City of London analysts had pencilled in but still equivalent to 5.9 per cent of GDP, up from 5.7 per cent in the first quarter.
“While the post-referendum slide in sterling should help to improve the UK’s external position in the coming months, the size of the UK’’s current account deficit means that the country will remain vulnerable to external shocks and changing market sentiment, and risks a further downgrade to our credit rating,” said Suren Thiru of the British Chambers of Commerce.Reuse content