UK economy still sluggish despite services pick-up
Weak construction and manufacturing performance in the UK has resulted in an economic slowdown in the first quarter of 2017 resulting in cooled growth, despite improvements from the services sector.
26 July 2017
The services sector helped boost growth in the UK’s gross domestic product in the second quarter of the year although, overall, the economy maintained its sluggish start to the year, according to official figures published on Wednesday.The Office for National Statistics (ONS) said GDP grew 0.3 per cent between April and June – an improvement on the 0.2 per cent recorded in Q1 but well down on the 0.7 per cent in the last quarter of 2016.
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Nevertheless the CBI’s latest Industrial Trends Survey appeared to contradict the downbeat ONS assessment for manufacturing and suggested production over the second quarter among UK manufacturers grew at the fastest pace since January 1995.The survey of 397 manufacturers also found that employee headcount increased at the fastest rate for three years and that hiring intentions for the coming quarter also improved. “Optimism rose marginally in the three months to July, while export optimism for the year ahead rose at a slower, but still healthy pace,” said the report.Growth in total orders moderated in line with expectations, but remained robust. Domestic orders expanded at a strong pace, similar to the rate in the previous quarter, and growth in export orders also remained brisk, despite slowing somewhat.But Ms Newton-Smith said, ”Output growth among UK manufacturers is the highest we’ve seen since the mid ‘90s, prompting the strongest hiring spree we’ve seen in the last three years. Cost pressures are easing and firms are upbeat about the outlook for export orders.
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UK economy slows in the first half of 2017
Output by the services sector in the second quarter expanded by 0.5 per cent, five times the rate recorded in Q1. “The economy has experienced a notable slowdown in the first half of this year,” Darren Morgan, head of GDP statistics at the ONS, said.“While services such as retail and film production and distribution showed some improvement in the second quarter, a weaker performance from construction and manufacturing pulled down overall growth.”Rain Newton-Smith, chief economist at the Confederation of British Industry (CBI), commented, “Economic growth has remained sluggish in line with our expectations. We expect growth to remain 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.”Related stories:
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Nevertheless the CBI’s latest Industrial Trends Survey appeared to contradict the downbeat ONS assessment for manufacturing and suggested production over the second quarter among UK manufacturers grew at the fastest pace since January 1995.The survey of 397 manufacturers also found that employee headcount increased at the fastest rate for three years and that hiring intentions for the coming quarter also improved. “Optimism rose marginally in the three months to July, while export optimism for the year ahead rose at a slower, but still healthy pace,” said the report.Growth in total orders moderated in line with expectations, but remained robust. Domestic orders expanded at a strong pace, similar to the rate in the previous quarter, and growth in export orders also remained brisk, despite slowing somewhat.But Ms Newton-Smith said, ”Output growth among UK manufacturers is the highest we’ve seen since the mid ‘90s, prompting the strongest hiring spree we’ve seen in the last three years. Cost pressures are easing and firms are upbeat about the outlook for export orders.
The two faces of a weak sterling
“It’s great to see the benefits from the decline in sterling for UK exporters feeding through. But the flipside is the broader hit to consumer spending power across the economy from stronger inflation, which is likely to have fuelled the slowdown in the economy in Q1 and pulled down growth in Q2.”Graham Toy, CEO of the National Association of Commercial Finance Brokers, said the CBI survey showed “an economy that’s standing very firm in the face of continued political uncertainty”.He added, “The survey of manufacturers demonstrates how the decline of sterling is a double-edged sword. While the weaker Pound is hitting consumer spending and confidence hard, UK exporters are having a field day.“A combination of positive hiring intentions, strong manufacturing output and optimism for the year ahead is a heady mix for the business sector, which has had its fill of downbeat predictions in recent months.“Buoyant investment intentions also tally with what our brokers are seeing on the ground, namely an appetite among small businesses to seek out the finance they need to grow.“While the outlook for the sector is positive over the coming months, awareness of the finance options that are available to business will be crucial to keeping manufacturing output strong.”For related news and features, visit our Enterprise section.Access hundreds of global services and suppliers in our Online Directory
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