The UK economy expanded 0.3% in the second quarter of 2017 compared to 0.2% in the first quarter. Most economists were expecting a slight pick-up in UK growth. GDP tracks the estimated total value of goods and services to understand whether the UK economy is growing or shrinking.
Before the announcement sterling was up 0.3% against the euro to €1.12; it also pushed higher against the dollar. UK GDP growth has been under pressure because of less spending due to the strain of a weaker pound, making many goods and services – particularly food and overseas holidays – expensive.
Industrial production and construction output fell month-on-month in April and May – not good supporting news for the second quarter. Currently the UK is heading towards the lower end of the G7 growth table.
On the plus side, the UK economy has now seen 17 consecutive quarters of growth. This is its eighteenth.
But the growth remains largely anaemic, accelerating slightly to 0.3% in the second quarter from 0.2% in Q1 says Ben Brettell, senior economist at Hargreaves Lansdown . “This means year-on-year growth of 1.7%. Growth was driven by the dominant services sector, which grew 0.5%, while construction and manufacturing exerted downward pressure on the overall figure, shrinking by 0.9% and 0.5% respectively.”
That 0.9% construction slip is particularly concerning (though the CBI recently claimed UK manufacturing accelerated at its fastest pace since January 1995 – so take all figures with a pinch of salt). The ONS said the largest contributors to growth in services was retail, which improved after a fall in the first quarter, and film production and distribution.
Overall, UK economic growth slowed during the first half of 2017 though the ONS claims activity remains 9.0% above its pre-downturn peak.
Real wages including bonuses (total pay) fell 0.7% in the three months to May 2017 compared with a year earlier – the most since August 2014.
Rate rise risk lowered
The entirely unsurprising GDP quarter two result should likely set the tone for the Bank of England (it originally estimated 0.4% growth for Q2). So little in the GDP figures to suggest a rate hike for August. Bear in mind all GDP estimates are just that – estimates. They are regularly revised at a later date.
So far sterling seems little affected, trading at $1.3013 while the FTSE 100 is up 42 points so far at 7,477. The FTSE 250, containing many more UK home-grown companies, is up 0.51% at 19,740.
Looking further ahead, Suren Thiru, head of economics at the British Chambers of Commerce, warned the BBC that this morning's Q2 GDP numbers could even be a high economic point of the year.
"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 UK economic growth.
Thiru added: "Rising inflation together with continued uncertainty over the longer-term impacts of Brexit is also likely to stifle investment intentions."
Recently the IMF downgraded UK GDP growth from 2% to 1.7%.