UK Economy Grows By 0.4% In Q2, But Manufacturing Falls Into Recession
12:49, 10th August 2018

This morning, the Office for National Statistics announced that the UK's GDP for the second quarter of 2018 increased to 0.4%.

This rate of quarterly GDP growth picked up from growth of 0.2% in the first quarter, and was in line with expectations.

In its report on the UK’s Q2 GDP, the ONS said weather was a key factor in the performance of the economy in both quarters.

Poor weather contributed to the low level of growth in Q1, but sectors like retail & construction saw recovery from this slowdown in the second quarter, helped by the good weather.

In Q2, service industries experienced robust growth of 0.5% in Q2, driven by 2.1% of retail trade growth, with computer programming also increasing by 1.9%.

Overall, services were the largest contributor to quarterly GDP growth, accounting for 0.42 percentage points.

Despite these positive numbers, growth in the production industries fell by 0.8% in Q2, primarily down to negative manufacturing growth of 0.9% - the second consecutive quarter of negative growth in manufacturing.

Technically this puts the UK manufacturing sector in recession, the industrial sector having shrunk by 0.8% between April - June.

Commenting on the GDP figures, ONS Head of National Accounts Rob-Kent Smith said: “The economy picked up a little in the second quarter with both retail sales and construction helped by the good weather and rebounding from the effects of the snow earlier in the year.

"However, manufacturing continued to fall back from its high point at the end of last year and underlying growth remained modest by historical standards.

“The UK’s trade deficit noticeably worsened as exports of cars and planes declined sharply while imports rose.”

Nancy Curtin, chief investment officer at Close Brothers Asset Management said: "Even with some acceleration, the economy is far from its peak. The rate of growth looks subdued in comparison to some global peers, with the US economy growing at twice the speed.

"However, it is not all doom and gloom. The consumer is beginning to look a little stronger, supported by wages growing in real terms, and the weak pound has buoyed exporters. Investors will be hoping this trend continues despite the uncertain backdrop.”

Anthony Gillham, head of investment at Quilter Investors, said: "While growth has improved slightly, it does so from a low starting point. Over the medium term, UK growth has been thoroughly unspectacular, with the domestic economy expanding at a slower pace than most developed countries.

"There is a real risk of stagflation on the horizon, with the recent interest rate hike failing to address the fall in the pound, and the sentiment of Mark Carney and Liam Fox even talking the value of Sterling to its lowest point against the dollar in a year.

"The UK finds itself in a difficult situation where the Bank of England is hiking rates to try and keep a lid on import costs that drive up inflation, but it is doing so against the backdrop of weak economic growth." 

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