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'Very little anecdotal evidence' UK economy hit by Brexit uncertainty

Published 26/08/2016

The UK economy continued to grow in the run-up to the EU referendum, figures show
The UK economy continued to grow in the run-up to the EU referendum, figures show

The UK economy continued to grow in the run-up to the Brexit vote, with "very little anecdotal evidence" to suggest it had been hit by uncertainty surrounding the EU referendum.

The Office for National Statistics (ONS) said gross domestic product (GDP) grew by 0.6% in the second quarter, up from 0.4% in the first three months of 2016.

Economists had pencilled in second quarter GDP growth to be unchanged at 0.6%.

In its second estimate for the period, t he ONS said: "There is very little anecdotal evidence at present to suggest that the referendum has had an impact on GDP in Quarter 2 2016."

Business investment appeared to show no impact from uncertainty ahead of the EU referendum vote, increasing 0.5% in the second quarter compared with the first quarter.

Household spending also shrugged off Brexit jitters to grow 0.9% in the three months to June, rising from 0.7% in the quarter before.

Joe Grice, ONS chief economist, said the second quarter GDP result reinforced the picture that the economy grew strongly in April, but remained flat in May and June.

" Business Investment grew in the second quarter, partly thanks to companies spending on transport equipment such as cars and planes. However, levels of investment remained lower than at the same period last year.

"Our survey returns, which include the period leading up to and immediately following the referendum, show no sign so far of uncertainty having significantly affected investment or GDP."

The second quarter expansion was driven by the strongest performance from industrial production since 1999, rising 2.1% over the period compared with a 0.2% fall in the quarter before.

Britain's dominant services sector, which accounts for around 79% of the UK economy, also grew by 0.5% in the second quarter, edging down from 0.6% in the first three months of the year.

Output for the services sector grew by 0.2% between May and June, picking up from flat growth between April and May, the ONS said.

Many economists had tipped the UK economy to maintain momentum ahead of Britain's vote to leave the European Union.

A recent slew of official data covering the first month after the Brexit vote suggests the British economy is also faring better than initially expected.

Warm weather spurred retail sales towards a higher-than-expected rise of 1.4% in July while those on jobseeker's allowance also tumbled 8,600 to 763,000 between June and July.

Consumer confidence has also risen at its fastest monthly rate in three-and-a-half years in August as Brexit jitters ease, according to the YouGov/Cebr Consumer Confidence Index.

However, a string of economic surveys covering the period after Britain's decision to ditch the EU also suggest the nation should brace itself for a sharp slowdown in economic growth.

Last month, the closely-watched Markit Flash UK Composite Output Index suggested the UK economy had slumped at its fastest rate since the financial crisis, falling to 47.7 in July, compared with 52.4 in June.

Samuel Tombs, chief UK economist for Pantheon Macroeconomics, said the "deterioration of nearly every survey of economic activity" between the first and second quarter suggests economic growth will be revised down eventually.

He added: "Looking ahead, consumers might be able to maintain strong growth in their spending for another quarter, but when inflation picks up in earnest early next year and firms follow through on plans to freeze hiring, they will have to slow down."

"Meanwhile, the slight rise in business investment in the second quarter provides little reassurance about the post-referendum outlook, since few businesses anticipated the Leave vote and surveys suggest firms are recoiling from major financial commitments in third quarter."

"As a result, we continue to see a high risk that the economy enters a mild recession over the coming quarters."

The pound was up 0.1% against the dollar at 1.32 US dollars and slightly ahead against the euro at 1.169 euro.

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