UK GDP expands 0.3% in the second quarter

The growth was broadly in line with expectations, with the service sector growing by 0.5 per cent between April and June this year, figures from the Office for National Statistics (ONS) revealed.

Of the three big sectors of the economy, only services were bigger at the end of June than in March, posting growth of 0.5% over the quarter.

Howard Archer, chief economic advisor, said, "The EY ITEM Club sees GDP growth limited to 1.5% in 2017, which would be the weakest performance since 2012 and down from 1.8% in 2016".

"While services such as retail and film production & distribution showed some improvement in the second quarter, a weaker performance from construction and manufacturing pulled down overall growth".

Despite lacklustre growth so far this year, Ben Brettell, senior economist at Hargreaves Lansdown, said there are tentative signs that the economy might improve in the second half. This left services output growth at 0.5%, softer than the 0.6% we forecast and hence saw GDP undershoot our expectation.

Output in construction fell 0.9 per cent in Q2 2017, with the industry's performance worse than all other major sectors of the United Kingdom economy in the three months from April to June.

Looking at the forex markets, sterling despite showing relative resilience against the greenback in recent weeks, fell slightly from $1.3025 prior the data release to a low of $1.2998.

In its monthly report last week, the German finance ministry said second quarter growth would probably be 0.6 percent, while in France, it is expected to be 0.5 percent.

'Looking ahead, we doubt that the economy will regain momentum in the second half of 2017.

"The economy has experienced a notable slowdown in the first half of this year", ONS Head of GDP Darren Morgan said.

But high inflation, fuelled by the drop in the value of the pound since the Brexit vote, has left the United Kingdom set to grow by 1.7 per cent compared to the 2 per cent it expected in April - making it the worst year for the economy since 2012.

"Inflation is likely to resume its upward trajectory in the coming months and this could trigger a sharper economic slowdown by increasing the squeeze on consumer spending - a major driver of United Kingdom economic growth".

Economists in a Bloomberg survey see the economy slowing to 1.6% this year and 1.3% in 2018.

At the same time, construction shrank 0.9% in the second quarter, reversing the first quarter's 1.1% expansion.

As long as there is uncertainty over what is going to happen with Brexit over the next two years, this economic weakness is likely to continue.

  • Eleanor Harrison