UK econ­omy stuck in low gear amid Brexit fears

In­dus­trial pro­duc­tion and con­struc­tion flag amid uncer­tain­ties

Kuwait Times - - BUSINESS -

Bri­tain’s econ­omy hob­bled along in the sec­ond quar­ter, barely re­cov­er­ing from a weak start to the year as in­dus­trial pro­duc­tion and con­struc­tion flagged amid uncer­tain­ties over the coun­try’s exit from the Euro­pean Union.

The econ­omy grew by a quar­terly rate of 0.3 per­cent in April-June, a mea­ger rate that is barely above the 0.2 per­cent of the first three months of the year, the Of­fice of Na­tional Sta­tis­tics said yes­ter­day.

Economists have been down­grad­ing their fore­casts for Bri­tain’s econ­omy as the coun­try em­barks on the process of leav­ing the Euro­pean Union and ne­go­ti­at­ing new trade re­la­tions. Yes­ter­day’s fig­ures show that the econ­omy, which had ini­tially weath­ered well the un­cer­tainty of the Brexit vote a year ago, is in a new, weaker phase. “It’s the un­der­ly­ing trends that mat­ter,” said Lucy O’Car­roll, Aberdeen As­set Man­age­ment’s chief economist. “They don’t look fa­vor­able at the mo­ment, given the uncer­tain­ties around Brexit and the pres­sure on house­hold bud­gets from higher in­fla­tion.”

The In­ter­na­tional Mon­e­tary Fund this week cut its fore­cast for Bri­tish eco­nomic growth this year to 1.7 per­cent from 2.0 per­cent pre­vi­ously. Oth­ers are more pes­simistic, with fi­nan­cial ser­vices firm PwC ex­pect­ing 1.5 per­cent. Rat­ings agen­cies Moody’s has also warned about prospects for the Bri­tish econ­omy. Growth in the sec­ond quar­ter was driven by ser­vices, which in­creased by 0.5 per­cent com­pared with 0.1 per­cent in the first quar­ter stretch­ing from Jan­uary to March.

Re­tail and film pro­duc­tion showed im­prove­ment, the ONS said. Mo­tion pictures were the sec­ond big­gest con­trib­u­tor from the ser­vices sec­tor, grow­ing by 8.2 per­cent. Man­u­fac­tur­ing swung from 0.3 per­cent growth in the first quar­ter to a 0.5 per­cent de­cline amid a slow­down in car pro­duc­tion. The re­sults also weaken the like­li­hood that the Bank of Eng­land’s Mon­e­tary Pol­icy Com­mit­tee will raise in­ter­est rates from their record lows of 0.25 per­cent. Though in­fla­tion is above the 2 per­cent tar­get, it mod­er­ated in June to 2.6 per­cent from a near four-year high of 2.9 per­cent in May.

“The con­fir­ma­tion of the lack­lus­ter per­for­mance of the econ­omy so far this year surely also di­min­ishes the chance of an in­ter­est rate hike any time soon, es­pe­cially as growth prospects for com­ing months have be­come in­creas­ingly skewed to the down­side,” said Chris Wil­liamson, chief busi­ness economist at IHS Markit, as he fo­cused on the sec­ond quar­ter.

‘Lit­tle mo­men­tum’

The lat­est quar­terly read­ing of 0.3-per­cent growth “con­firms that the econ­omy has lit­tle mo­men­tum be­cause con­sumers are en­dur­ing fall­ing real wages (on high in­fla­tion) and busi­nesses are hold­ing back from spend­ing due to Brexit risk”, said Sa­muel Tombs, chief UK economist at Pan­theon Macroe­co­nomics.

Bri­tish GDP slowed in the first quar­ter af­ter out­put of 0.7 per­cent in the fi­nal three months of 2016. Bri­tish in­fla­tion is mean­while be­ing sup­ported by a Brexit-fu­elled slump in the pound push­ing up im­port costs-al­though the an­nual rate man­aged a slow­down to 2.6 per­cent in June from a near four-year high of 2.9 per­cent in May.

“The good news is that the worst of the ex­change rate in­duced in­fla­tion should start to roll off... which can of­fer sup­port to the key re­tail and ser­vices sec­tors,” said Neil Wil­son, se­nior mar­ket an­a­lyst at ETX Cap­i­tal. —Agen­cies

KARACHI: Oil tankers park in a ter­mi­nal amid a coun­try­wide strike by the All Pak­istan Oil Tankers As­so­ci­a­tion near a port in the Pak­istani city of Karachi yes­ter­day. The As­so­ci­a­tion an­nounced a coun­try­wide strike to protest re­vised safety reg­u­la­tions for oil tankers, an­nounced by the Oil and Gas Reg­u­la­tory Au­thor­ity (OGRA). —AFP

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