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UK economic growth bounces back despite Brexit uncertainty

Edmund Heaphy
Finance and news reporter
Workers cross London Bridge during rush hour, with Tower Bridge seen in the background. Photo: Reuters/Toby Melville

UK economic growth bounced back in May, to 0.3%, data released on Wednesday by the Office for National Statistics (ONS) shows.

The figure is an improvement on the 0.4% contraction seen in April.

The economy also grew quicker than expected — by 0.3% – in the three months to the end of May, suggesting that the country’s economy picked up once the threat of a no-deal Brexit in March and April dissipated.

The ONS revised its growth estimate for March to 0.1%, when previous figures had suggested that the UK economy shrunk by 0.1% in that month.

That, coupled with the strong three-month growth, is likely to temper fears that the UK entered a recession in the second quarter.

“UK GDP growth remains choppy from month to month as a result of volatility either side of the original Brexit date of 29 March, but the underlying picture is one of continued modest growth in the economy,” said PwC chief economist John Hawksworth.

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Rob Kent-Smith of the ONS pointed to the “partial recovery in car production”, which surged by 24%, as something that precipitated the return to growth in May.

But because April, following a series of plant shutdowns, saw the worst fall in car production since records began, the auto sector is still smaller than it was in March.

“GDP grew moderately in the latest three months,” Kent-Smith said, noting that the IT, communications, and retail sectors showed strength.

There has been a “longer-term slowdown”, however, in the services sector since the summer of 2018, he said.

Rolling three-month growth in the construction sector slowed for the second month in a row, while month-on-month growth in the sector was 0.6%, representing a recovery from the negative growth seen in the previous two months.

James Knightly, the chief international economist of ING, noted on Wednesday that growth “will continue to be choppy through the rest of the year”, with firms likely to stockpile ahead of a potential no-deal Brexit in October.

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He warned that business surveys suggest that growth in June “will be very weak,” and said that the second quarter could in fact have seen a contraction as a result.

Paul Dales, chief economist at Capital Economics, said on Wednesday that it looked as though the economy shrunk by 0.1% in the second quarter.

“There’s clearly a risk of a recession (two consecutive quarterly contractions), but we’re not expecting one,” Dales said.

Other analysts, however, think that the solid recovery means that growth in the second quarter is likely to come in at 0%, rather than enter negative territory.

“The economy still is faring better than most business surveys imply, and little spare capacity is opening up,” said Samuel Tombs, the chief UK economist at Pantheon Macroeconomics.