LONDON: UK growth for the second quarter has been revised up from 0.6% to 0.7%, official figures show. Figures from the Office for National Statistics (ONS) also showed that the dominant services sector had done much better than expected in July, following the Brexit vote, than was previously thought.
They will further dampen fears that the UK could be plunged into recession by the outcome of the referendum. A decent start to the third quarter also eases pressure on the Bank of England as it considers cutting interest rates further in November.
ONS head of GDP Darren Morgan said: “Together this fresh data tends to support the view that there has been no sign of an immediate shock to the economy, although the full picture will continue to emerge.” The latest official data covering gross domestic product (GDP) in the April to June period shows that the economy was more buoyant in the run-up to the referendum than previous estimates suggested.
Business investment did better than previously thought – showing little sign of nerves ahead of the poll – while consumer demand remained a big driver of growth, as savings narrowed to their lowest rate since 2008. However, the UK’s trade deficit with the rest of the world – the gap between exports and imports – was a big drag on the economy’s performance. Services figures for July showed the sector grew by 0.4% in the month following the referendum. It appears to contradict gloomy separate survey data – which is published earlier but is less comprehensive – that suggested a sharp downturn in July, followed by a bounce-back in August.
The sprawling services sector – ranging from cafes and bars to accountancy and law firms – represents about four-fifths of UK output. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The jump in services output in July is the clearest sign yet that the Brexit vote has not pushed the economy into a recession.” “Considerable doubt is now cast over whether the MPC with cut interest rates again in November. ” “A strong case remains, however, for expecting the economic recovery to slow ahead.”
The Bank of England – which in August predicted a sharp slowdown following the Brexit vote – more recently said that the economy has not been affected as much as it feared. But it still indicated that it expected a further cut in interest rates, which are already at a historic low of 0.25%. Last week, the ONS said the EU vote appeared to have had no major effect on the economy so far.
