UK economy has suffered its weakest six-month growth period since 2011, as the figure for the first quarter was revised lower.
While the second reading for gross domestic product (GDP) confirmed initial estimates of 0.4% for the second quarter, the Office for National Statistics (ONS) said growth was weaker in the first three months of the year.
It has revised GDP down from 0.2% to 0.1% for the period from January to March this year – a period that saw the country hit by extreme wintry weather brought in by the Beast from the East. The 0.4% estimate for second quarter GDP was in line with economist estimates.
The pound was mixed on the release, trading higher by 0.1% against the euro at 1.124, but down 0.15% versus the US dollar at 1.305. The downward revision to first quarter growth was a result of updated construction estimates, which the ONS said was due to more comprehensive administrative data replacing surveys covering the industry.
It means construction output for the first quarter fell by 1.6%, the weakest quarterly growth since 2012. “There is an underlying trend of slowing real GDP growth, as the UK economy grew by 0.5% in the first half of 2018 compared with the second half of 2017,” the ONS report said. “This marks the weakest six-monthly growth since the second half of 2011”.
However, construction bounced back in the second quarter, with more favourable weather helping output grow 0.8%. Manufacturing fell by 0.7% between April and June. It marked the second consecutive quarterly fall, reflecting an “easing” in manufacturing export growth. Economic growth in the second quarter was supported by the UK’s powerhouse services sector, which grew 0.6% compared to subdued growth of just 0.3% in the first three months of the year.
It was helped by a rebound in retail sales, having been affected by adverse weather in the first quarter. But spending was fuelled by debt, according to ONS data, which showed households continued to be net borrowers in the second quarter.
It was the seventh consecutive quarter in which households had to borrow or dip into savings to finance their spending and investment. “The households’ saving-ratio remains low by historical standards at 3.9%,” the ONS said.
Commenting on the data, the statistics agency’s head of national accounts Rob Kent-Smith said: “Although it has picked up a little from a slow start to the year, underlying economic growth remains persistently below the long-term average.
“The latest business investment data shows growth weakening for the fourth quarter in a row while households have spent more than they earned for seven consecutive quarters. “Meanwhile our deficit with the rest of the world has grown, with goods imports increasing and overseas income falling.”
Figures showed the UK’s current account deficit widening to 3.9% in the second quarter, due in part to the trading in “erratic goods” like gold and aircraft which the ONS said can be volatile and not necessarily representative of the underlying trend.
Business investment fell by 0.7% between April and June, with external surveys having suggested that Brexit uncertainties have been taking their toll. Howard Archer, chief economic adviser to the EY ITEM Club, said: “While GDP growth recovered in the second quarter, the growth mix was not particularly appetising on the expenditure side of the UK economy with business investment falling and net trade sharply negative.”
“Despite the recent improved performance of the UK economy and a pick-up in consumer price inflation to a 6-month high of 2.7% in August, we expect the Bank of England to hold fire on further interest rate hikes until after the UK leaves the EU in March 2019 given the major uncertainties that are occurring in the run-up to the UK’s departure.”