Britain’s gross domestic product (GDP) grew 0.6 percent in the second quarter, indicating that businesses ignored “Brexit” fears in the run up to the 23 June EU referendum.
The Office for National Statistics (ONS) said on Wednesday that growth between the period of April-June was stronger than the 0.4 percent achieved in the first quarter. This was driven by the best performance from the industrial sector, which expanded by 2.1 percent, in approximately 17 years.
The services sector grew 0.5 percent in the second quarter. However this was offset by slumps in construction and agriculture.
The second quarter estimate included the surprising “Brexit” vote at the end of the period.
This exceeds market expectations as economists only forecast a 0.5 percent growth in the second quarter.
Chief economist at the ONS, Joe Grice, said there was little evidence that fears about the possibility of a “Brexit” victory negatively affected the economy before the referendum.
“Continued strong growth across services, particularly in retailing, reinforced by healthy growth in the manufacture of cars and pharmaceuticals, boosted output in the second quarter.”
He added: “Any uncertainties in the run up to the referendum seem to have had a limited effect. Very few respondents to ONS surveys cited such uncertainties as negatively impacting their businesses.”
Philip Hammond, Chancellor of the Exchequer, responded to the news about the growth estimate by saying that this shows Britain is “in position on economic strength” for negotiations to leave the EU.
“Today’s GDP figures show that the fundamentals of the British economy are strong,” said the Chancellor.
“In the second quarter of this year our economy grew by 0.6 percent — faster than was expected.”
“Indeed we saw the strongest quarterly rise in production for nearly twenty years, so it is clear we enter our negotiations to leave the EU from a position of economic strength.”
Referring to the “Brexit” talks, he added that: “Those negotiations will signal the beginning of a period of adjustment, but I am confident we have the tools to manage the challenges ahead, and along with the Bank of England, this government will take whatever action is necessary to support our economy and maintain business and consumer confidence.”
Alan Clarke, Scotiabank economist, stated that the second quarter was not negatively impacted by “intense” worries over the outcome of the EU referendum because many businesses had expected Britain to remain.
“The outcome of the referendum was a real surprise,” said Clarke.
“Most people thought the UK would vote to stay in the EU, so the pre-vote jitters were probably not as intense as feared.”
Despite growth in the second quarter, economists have warned that they expect a sharp slowdown in the upcoming months.
Many economists also believe that the second quarter growth will not change Britain’s economic outlook.
Martin Beck, senior economic advisor to the EY Item Club, said the numbers represented “one last hurrah” for the British economy before it becomes weaker and enters a more turbulent period.
Private sector business activity, measured by research group Markit’s Purchasing Managers Index (PMI), revealed that economic growth in the period following “Brexit” had slumped at its fastest rate since the global financial crisis.
The Bank of England’s monetary committee has already warned that they may respond to “Brexit” by cutting the interest rate in August. It is expected to be cut to a new all-time low of 0.25 percent from 0.5 percent next week.
The Bank also suggested that they will announce a set of measures intended to increase confidence among businesses as Britain faces a long period of uncertainty following the referendum outcome.
Chancellor Hammond said last week that the government may unleash a “fiscal response” in his fall budget update to offset the negative impact of “Brexit”.
“Better-than-expected growth in the second quarter is unlikely to alter the course of policymakers,” said Schroders economist Azad Zangana.
“Both the Bank of England and HM Treasury are plotting stimulus packages in order to minimize the damage from the uncertainty surrounding Brexit.”
“This is likely to include a cut in interest rates in August, possibly a restarting of quantitative easing, and fiscal stimulus in the Autumn Budget Statement.”
It was also announced on Wednesday that EU Commission President Jean-Claude Juncker assigned former EU commissioner Michel Barnier to lead “Brexit” negotiations with the UK.