Better-than-expected UK GDP provides solace but no insight

Added 27th July 2016

Preliminary UK growth figures for the second quarter have raised hopes slightly that the British economy was on a better footing heading into the EU Brexit referendum than had been expected.

Better-than-expected UK GDP provides solace but no insight

UK gross domestic product (GDP) grew by a better-than-expected 0.6% in the second quarter of 2016, the Office for National Statistics revealed on Wednesday.

Little Brexit impact

Not too much can be read into the figure about the impact of Brexit on the UK economy because it only uses 44% of the dataset that makes up the full GDP number and only provides a forecast for June. however, it has provided some solace.

Hargreaves Lansdown senior economist, Ben Brettell, said that while Wednesday’s numbers provide scant evidence on the state of the current climate, what they do show is “is an absence of pre-Brexit concerns, meaning that if the forecast downturn does materialise, at least we start from a position of relative strength”.

Forward indicators grim

To get a sense of what happens from here, Brettell said one needs to look at leading indicators which currently all make for grim reading.

“Consumer confidence fell at its fastest pace in 22 years in the aftermath of the vote, while 30% of business leaders said they were likely to either freeze recruitment or lay workers off. Last week’s PMI survey came in at 47.7, with a number below 50 signalling a contraction in activity. The slump was the fastest since early 2009,” he said.

Azad Zangana, Schroders senior European economist agreed, before adding that better-than-expected growth in the second quarter is unlikely to alter the course of policymakers.

“Both the Bank of England and HM Treasury are plotting stimulus packages in order to minimise the damage from the uncertainty surrounding Brexit. This is likely to include a cut in interest rates in August, possibly a restarting of quantitative easing, and fiscal stimulus in the Autumn Budget Statement.  We continue to place a 40% chance of a recession in the near term.”

 

 

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Geoff Candy

Group digital editor

Geoff Candy joined Portfolio Adviser as News Editor in May 2014. He has been a financial journalist and broadcaster since 2005 and, in that time has worked in both South Africa and the Netherlands, covering everything from high street retailers and construction companies to mining and insurance.

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