July 28, 2016    3 minute read

What Does The Second Quarter UK GDP Tell Us?

   July 28, 2016    3 minute read

What Does The Second Quarter UK GDP Tell Us?

The ONS has released confounding preliminary statistics indicating a 0.6% growth in UK domestic output throughout the second quarter (April to June), notably higher than leading forecasters has predicted in the wake of the EU referendum.

This, however, is far from an indication that Brexit has not – and will not – take its toll on the domestic economy. A 0.6% expansion may have proved higher than estimates, but this figure is inflated by a strong April, in which both industrial production and the construction sector increased by over 2%.

This may be contrasted by a far more modest increase of just 0.5% in the UK’s service sector, responsible for over three quarters of the total UK output. May saw a contraction throughout all three sectors, while June produced an expectedly nervous flat-line in growth.

Is It Good News?

Experts describe the figures as a “strong platform” from which the UK economy may weather the inevitable repercussions deriving from the Brexit vote, as opposed to an outright cause for celebration. Newly appointed Chancellor Philip Hammond said:
“Today’s GDP figures show that the fundamentals of the British economy are strong […] so it is clear we enter our negotiations to leave the EU from a position of economic strength.”
What does this signal? There is little optimism amongst policy makers and investors alike that the UK economy will publish positive GDP figures after the third quarter. Speculators argue this creates an imperative need for the Bank of England to further lower interest rates and to purchase corporate bonds.

0.6% was the UK GDP growth in Q2

Questions arise on the UK’s future trade policy. With an ever-present threat of the anti-globalisation wall-enthusiast Donald Trump becoming the next US president there may soon be a vacancy for the global proponent of free trade. The British Prime Minister Theresa May will soon face the inevitable trade-off between adopting a unilateral free trade agreement to drive in foreign direct investments and lower prices, or to impose protectionist measures to shield domestic industries.

In the short-term, the vast majority of relevant publications and expert analysis all point towards the UK falling back into recession, with UK property developers feeling the most immediate and tangible effects. Uncertainty will likely take its toll throughout most UK sectors in the midst of a period of adjustment.

What Is Next?

Newly independent Britain must forge a new role within the international stage. Whether this will be helped or hindered by a departure from the European Union is yet to be seen. Theresa May spoke recently suggesting the concept of a “National Interest” screening procedure to foreign takeovers in the UK. Such protectionist rhetoric may set the tone regarding the future of British trade policy. However, experts suggest this would be damaging to both short and long term prosperity of the UK economy.

A period of uncertainty, adjustment and trepidation lie ahead and it will be the unenviable job of the UK Government and the Bank of England to mitigate the short-term losses and ensure the long term prosperity of the UK economy.

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