Some relatively good news for the UK economy today. The latest ONS figures show that the economy grew by 0.4% in the second quarter of 2018, up from 0.2% in the first three months of the year.
This was better than the Eurozone and France, who managed 0.3% and 0.2% respectively, to the delight of some Brexiteers. The People’s Vote campaign (continuity Remain) haven’t made too much of the latest figures.
But the reality is that the recent uptick in growth has little to do with Brexit. The warm weather helped boost both construction and consumption, while the service sector also drove growth, expanding by 0.5%.
However, the figures for the industrial sector make for grim reading. The sector shrank by 0.8%, with the manufacturing base contracting for the second consecutive quarter, this time by a staggering 0.9%, the largest quarterly fall since 2012. Worryingly, this means that manufacturing is now in technical recession.
What’s more, the weaker pound since Brexit has failed to rectify Britain’s trade deficit, which increased further in the last quarter. The UK exported fewer cars and planes, whilst demand for imports grew.
This is troubling for consumers, since the cost of imports is on the up as the value of the pound continues to slide in response to the prospect of a “no deal Brexit”. This morning, Sterling fell to its lowest level against the US dollar in 13 months.
Looking at the bigger picture, quarterly growth of 0.4% offers little excitement. The longer-term trend since 2014 is of a slowing economy. Furthermore, compared to the rate of growth we became accustomed to in the decades preceding the financial crisis, this latest figure is relatively disappointing. As the ONS states, “underlying growth remained modest by historical standards”. When compared internationally, the UK is still trailing behind several other OECD countries, including America.
Unsurprisingly, the Chancellor Philip Hammond welcomed today’s news, tweeting:
“The economy has grown every year since 2010. Unemployment is at its lowest since the 1970s and our national debt is starting to fall. We are building a stronger economy for everyone.”
Suren Thiru, head of economics at the British Chambers of Commerce, offered a soberer analysis, stating that this quarter’s improvement “does little to alter the UK’s lacklustre growth trajectory.”
The reality is that while growth is up after a miserable winter, there is still plenty of work to be done to boost investment, exports and manufacturing. To add to the challenge, this will have to be achieved against the backdrop of continuing uncertainty over Brexit.
