Data expected to show strong UK economy

Posted on July 24, 2016

Pedestrians crossed the road at a crossing on Oxford Circus as British Union flags hang above Regent Street in London, U.K., on Tuesday, May 24, 2016. U.K. retail sales began the second quarter with more momentum than economists forecast. Photographer: Simon Dawson/Bloomberg©Bloomberg

The UK economy was resilient in the run-up to the EU referendum, official data are expected to show this week.

After a series of stronger than anticipated figures, economists expect the pace of growth to have increased to 0.5 per cent in the second quarter of the year, the 14th consecutive quarter of growth.

    Many surveys reported falling confidence in the run-up to the vote on June 23, but official results have been strong.

    Retail sales volumes grew, performance in the industrial sector improved and the trade deficit shrank.

    However, economists warned against assuming the trend would continue.

    In a note to clients, economists at BNP Paribas, said solid second-quarter growth would be a reflection of “temporary strength” in the economy, and Howard Archer, economist at IHS Global Insight, said it would be “some considerable time before the economy again expands anything like 0.5 per cent quarter on quarter”.

    The National Institute of Economic and Social Research, which has predicted growth of 0.6 per cent in the second quarter, said the quarterly figure masked important differences between months.

    Jack Meaning, a research fellow at Niesr, said their monthly estimates suggested there was a large expansion in gross domestic product in April, but stagnation in May. “The estimate for June is one of an intensifying contraction across the board, but this is not enough to offset the very strong April numbers,” he said.

    Accountancy firm EY has reported that profit warnings by UK listed companies have hit their highest level in any second quarter since 2008. But EY stressed it was hard to disentangle the impact of Brexit from other issues.

    “Many UK companies still face sluggish, disrupted and competitive markets, with Brexit adding further layers of challenge, but also opportunity,” said Alan Hudson, EY’s head of UK restructuring.

    The results of a purchasing managers’ survey conducted after the referendum and published on Friday were weak, reporting a big drop in business activity.

    The UK economy at a glance

    UK economy at a glance

    The FT’s one-stop overview of the key UK economic data, including GDP, inflation, unemployment, the major business surveys, the public finances and house prices

    Azad Zangana, senior economist at Schroders, said the “scale of the decline in activity is alarming” and provided more ammunition for those inside the Bank of England who believe that now is the time to cut interest rates to a new low.

    However, he warned that the data represented only a few weeks worth of information, and that there may be a rebound after the initial shock of Brexit has subsided.

    This sentiment was echoed by some business leaders who argued it was too soon to draw conclusions about the impact of Brexit on the UK economy.

    Adam Marshall, acting director-general of the British Chambers of Commerce, told the FT that he wanted to wait and see what the official statistics say in the autumn.

    “I was with a company in Northern Ireland which said business was booming. Other companies are changing their hiring strategies. But let’s not talk down the economy on the basis of early data,” he said.

    Additional reporting by Jim Pickard

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