Market News

UK GDP perks up in second quarter despite manufacturing recession

10/08/2018 09:35

(Sharecast News) - UK economic growth picked up as expected in the second quarter of the year in spite of the manufacturing sector technically tipping into a recession and disappointing growth in June. UK gross domestic product in the period from April to June grew 0.4% more than the first three months of 2018, which was in line with the Bank of England's prediction and the average forecasts of economists, picking up from the disappointing 0.2% growth in the first quarter. The Office for National Statistics said that UK GDP was 1.3% higher compared to the second quarter last year, also as anticipated, up from 1.2% annual growth in the first quarter. Monthly GDP growth in June was up 0.1% month-to-month, below the consensus forecast of 0.2%. Services industry output grew 0.5% and construction output increased 0.9% on the first quarter, while industrial production decreased 0.8%.

Quarterly consumer spending growth picked to 0.3% from 0.2%, with businesses also defying Brexit-related uncertainty to rebound to 0.5% from a 0.4% decline in the first quarter. The ONS noted that the figures included the "second consecutive quarter of negative growth in manufacturing", meaning the sector was technically in a recession. Rob Kent-Smith, head of national accounts at the ONS, said: "The economy picked up a little in the second quarter with both retail sales and construction helped by the good weather and rebounding from the effects of the snow earlier in the year.

However, manufacturing continued to fall back from its high point at the end of last year and underlying growth remained modest by historical standards. "The UK's trade deficit noticeably worsened as exports of cars and planes declined sharply while imports rose." The ONS also revised down the pace of economic growth in the fourth quarter of 2017 to 0.4% from 0.5%, meaning year-on-year terms GDP growth was revised to 1.4%, the slowest pace seen for just over five years and the total GDP growth for the whole of 2017 was trimmed to 1.7%, the worst performance since 2012. Ruth Gregory, senior economist at Capital Economics, said growth would have been weaker had it not been for a big contribution from inventories, offsetting a "whopping" 0.8 percentage-point drag on growth from net trade, which was still down 0.5pp even excluding the volatile valuables component. Economist Sam Tombs at Pantheon Macroeconomics said that with world trade slowing and more than two years having passed since sterling's depreciation, the chances of a net trade boost finally materialising "are slim" and he continued to expect quarterly GDP growth to slow to a below-trend 0.3% in the third and fourth quarters, "putting little pressure on the MPC to raise Bank Rate again within the next six months". June's GDP showed a "meagre" rise, he added, showing that the economy has "little momentum" heading into the third quarter, with the downside surprise largely coming from flat services output and the expenditure breakdown suggesting "consumers have started to adopt a more cautious mindset", with household spending up only 0.3% quarter-on-quarter in real terms.

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