UK GDP growth surprisingly picks up to 0.6 per cent in second quarter of 2016

Growth in the three months to June was 0.6 per cent, up from 0.4 per cent in the first quarter

Ben Chu
Wednesday 27 July 2016 09:23 BST
Manufacturing surged at its fastest pace since 1999
Manufacturing surged at its fastest pace since 1999 (Getty)

UK GDP growth unexpectedly picked up speed in the second quarter of 2016, according to the Office for National Statistics - but economists warned that this was likely to be a "last hurrah" for growth before a rapid slowdown in the wake of the 23 June Brexit vote.

Growth in the three months to June was 0.6 per cent, up from 0.4 per cent in the first quarter, said the ONS.

Growth picks up

City of London economists had only been anticipating another quarter of 0.4 per cent growth.

“Today’s GDP figures show that the fundamentals of the British economy are strong. It is clear we enter our negotiations to leave the EU from a position of economic strength" said the Chancellor Philip Hammond.

The quarter's GDP expansion was helped by a 2.1 per cent increase in industrial production, the sector's strongest quarterly performance since 1999.

Manufacturing output expanded by 1.86 per cent, also the strongest quarter registered since 1999.


The annual growth rate climbed to 2.2 per cent, the strongest in four quarters.

However, economists warned that the improvement was unlikely to be sustained.

A batch of major business surveys by Markit/CIPS last week suggested that activity in the services and manufacturing sectors of the economy fell at its fastest pace since 2009 in the wake of the shock vote by the British public to leave the EU on 23 June.

And the Bank of England’s Monetary Policy Committee is widely expected to cut interest rates at its meeting next month to support the economy.

Martin Weale, one of the most hawkish members of the MPC, signalled in an interview this week that he had changed his mind on the need for stimulus due to the latest disappointing survey data.

"The second quarter’s GDP figure is not as robust as it seems at face value and it won’t hold back the MPC from cutting interest rates next week" said Samuel Tombs of Pantheon. "Growth in activity clearly lost momentum as the referendum approached."

"GDP growth in Q2 looks likely to represent one last hurrah for the economy before it enters a softer and more turbulent period. The lack of momentum as the economy entered Q3 means that the chances of a negative reading for the current quarter are relatively high" said Martin Beck of the EY ITEM Club.

The National Institute for Economic and Social Research (NIESR), had correctly forecast on 7 July that the ONS would report 0.6 per cent Q2 growth.

But NIESR's head of modelling, Simon Kirby, said monthly GDP estimates suggested "a marked slowdown" in the latter part of the quarter.

The ONS estimates that services, which account for around 80 per cent of output, grew by 0.5 per cent in the quarter, down from 0.6 per cent growth in Q1.

Construction, which is around 6 per cent of output, is seen as contracting by 0.4 per cent, a second quarter of contraction.

Industrial prodution accounts for around 15 per cent of output and, within that, manufacturing is 10 per cent.

The ONS's preliminary estimate of GDP growth is based on less than half of the survey data that will go into forming the agency's final GDP estimate in two months' time and is therefore liable to revision.

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