City analysts and business lobby groups urged caution over the latest UK official data pointing to quarterly economic growth of 0.3% in the second quarter.
In its preliminary estimate of economic activity, the Office for National Statistics (ONS) said on Wednesday (26 July) the service sector supported economic activity in the months from April to June, along with film production and distribution, but construction and manufacturing activity weakened.
On a year-on-year basis, Britain’s economy expanded 1.7% in the second quarter, down from the 2% reading recorded in the previous three months, but matching analysts’ expectations.
Rain Newton-Smith, Chief Economist at the Confederation of British Industry (CBI), said economic growth remains sluggish. “We expect growth to be lukewarm over the next couple of years, so providing businesses with certainty and stability has never been more important.
“A limited transition period as we leave the EU where the UK stays in the single market and a customs union until a final deal is in force, would help create a bridge to a new trading arrangement. It would give businesses the confidence they need to invest, expand and create jobs.”
Suren Thiru, head of economics at the British Chambers of Commerce, said: “The pick-up in growth in the second quarter could prove to be a high point for the UK economy this 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 that rising inflation together with continued uncertainty over the longer-term impacts of Brexit is also likely to stifle “investment intentions.”
Away from lobby groups, Ben Brettell, senior economist with Hargreaves Lansdown, warned against placing too much importance on the preliminary ONS estimate. “As ever it’s worth noting that initial GDP estimates can usually be taken with a pinch of salt, as they are based on less than half of the data which will ultimately be available, and are therefore subject to revision in the coming months.”
But Brettel added that there are tentative signs things might improve in the second half of the year. “Last week saw news that retail sales rose ahead of expectations, indicating the consumer may still have some petrol in the tank – though the Bank of England has expressed caution over rising levels of personal debt.
“Meanwhile inflation began to recede, which if it continues in the coming months could end the squeeze on real incomes.”
John Hawksworth, chief economist at global consultancy PwC, said even the preliminary estimate looked “modest.”
“Overall, we expect this modest growth to continue at a similar rate in the second half of the year, giving annual average GDP growth of around 1.5% in 2017. It will probably see the UK lag behind both the US and the Eurozone this year as the effects of Brexit-related uncertainty and higher inflation dampen growth here.”
However, Hawksworth does not expect the “slowdown to turn into a recession.”