UK GDP beats expectations in second quarter

The Office for National Statistics (ONS) said two of the main industrial groupings saw growth, with services growing by 0.5 per cent and production 2.1 per cent.

GDP has now risen by 2.2 per cent over the past 12 months.

The quarterly figure, which includes the build-up to the June EU referendum and immediate aftermath, may calm some nerves over the impact of Brexit. But third quarter’s figures may not be so positive.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, played down the better than expected data. He said the Bank of England (BoE) would still cut rates next week.

Mr Tombs highlighted the 0.6 per cent figure only reflected a pick-up in production, which rose from -0.2 per cent in Q1 to 2.1 per cent – but said this was due to a seasonal surge in energy supply.

“The rest of the economy slowed,” he said, “Construction output fell by 0.4 per cent, slightly worse than Q1’s 0.3 per cent drop, and growth in services output slowed to 0.5 per cent in Q2 from 0.6 per cent in Q1.”

Mr Tombs added that the outlook for inflation, which is on course to exceed the Monetary Policy Committee’s 2 per cent target next year, meant the BoE would only cut rates next week, rather than introducing a package of stimulus measures.

“The collapse in all surveys of activity and confidence undertaken since the referendum suggest GDP is on course to contract in the third quarter,” he added.

Capital Economics UK economist Scott Bowman was equally pessimistic about next quarter’s growth. He said the growth seen between April and June was driven entirely by a surge in the first month of the quarter, boding poorly for the rest of the year.

“Indices suggest GDP fell in May and ONS initial estimates imply activity was flat in June...[and] the PMI suggests that output contracted in July” he said.

“While we think activity for the whole of the third quarter won’t be as weak as the July PMI suggests...we believe growth will grind to a halt in the second half of this year.”