The UK’s economy grew at half the rate of the eurozone’s during the second quarter of the year, as a Brexit-fuelled jump in inflation dealt a sharp blow to consumer spending.
A second reading of official figures from the Office for National Statistics showed on Thursday that the UK economy expanded by 0.3 per cent in the three months to the end of June, unrevised from previous figures.
Earlier this month, an estimate for growth over the same period in the 19-member single currency bloc was 0.6 per cent.
The British economy displayed surprising resilience in the immediate aftermath of last June’s Brexit vote, with an expansion of 0.5 per cent in the third quarter of the year and 0.7 per cent in the final quarter. But more recently a jump in inflation, stemming from a dramatic sell-off in the pound against the euro, the US dollar and other currencies, has dampened consumer spending and pushed the UK’s growth rate to the lowest of the G7 club of large and developed economies.
Strategists, analysts and think tanks have in recent weeks slashed their growth forecasts for the full year and many anticipate that the pound could fall further still.
“Looking ahead, we expect the economy to continue to struggle,” Samuel Tombs, chief UK economist at Pantheon Macroeconomics said on Thursday. He said he expects the economy to grow by just 0.2 per cent in the third and fourth quarters of 2017.
“The sharp fall in consumers’ confidence over the last two months suggest that households won’t continue to cut their saving rate,” he added. He said that he expects “Brexit risk to increasingly bear down on business investment as the UK’s exit date draws nearer”.
John Hawksworth, chief economist at PwC, said that he also expects weak growth to continue through the second half of the year. “But we don’t think this slowdown should turn into a recession due to the fact that employment growth remains reasonably strong and government spending is now cushioning some of the blow to business confidence from Brexit,” he said.
Ian Stewart, chief economist at Deloitte, said that even though he also expects “subpar growth” over the coming months, exports and manufacturing may help offset the headwinds from a weaker consumer.
Separate data on Thursday showed that British household spending grew at its weakest pace since late 2014 in the three months to June of this year, bruised by the weak pound.
Year-on-year spending growth declined to 2 per cent from 2.6 per cent after expanding just 0.1 per cent in the second quarter.
In July, the International Monetary Fund (IMF) said that it expects the country’s economy to grow by 1.7 per cent overall in 2017, compared to a previous forecast of 2 per cent.
The Centre for Economics and Business Research (Cebr) anticipates that the UK economy will grow by just 1.3 per cent in 2017, representing a substantial downward revision from an earlier forecast of 1.7 per cent.
Retail sales, another key barometer of the strength of the UK consumer, were up 0.3 per cent in July but the annual rate of growth dropped sharply to 1.3 per cent from 2.8 per cent previously.
Official inflation was 2.6 per cent in July, up from just 0.6 per cent a year earlier.
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