UK economy warms up a touch, Brexit hurdles ahead
* UK economy expands 0.4 pct in Q2, as expected
* Services sector drives growth, trade drags
* Data shows economy lost momentum in June
(Adds graphic, reaction)
By Andy Bruce and William Schomberg
LONDON, Aug 10 (Reuters) - Britain's economy warmed up a
little in the second quarter from its winter slowdown of early
2018, but there was no sign of an end to its stuttering
performance ahead of Brexit next year.
The world's fifth-biggest economy relied on the services
industry for growth in the second quarter, despite signs that
its households were under growing financial strain.
By contrast, manufacturers struggled and net trade dragged
on growth as any boost from the pound's post-Brexit vote fall
Gross domestic product expanded 0.4 percent in the
April-June period after a 0.2 percent rise in the first quarter,
as expected in a Reuters poll of economists, the Office for
National Statistics said.
In annual terms, growth picked up only slightly to 1.3
percent in the second quarter after a nearly six-year low of 1.2
percent at the start of the year.
Sterling, shaken over the last week by growing talk of a
no-deal Brexit, was little moved by the data which showed
businesses remained reluctant to raise investment.
Net trade exerted the biggest drag on the economy since the
third quarter of 2016.
Britain's economy slowed after the decision to leave the
European Union and is expected to continue to expand at a weaker
pace than most other developed economies as the March 2019
Brexit date approaches.
"Overall we judge that the economy's performance in Q2 was a
touch disappointing, bearing in mind the support to growth from
a double weather whammy of a recovery from a cold Q1 and a boost
from a warm Q2," Investec chief economist Philip Shaw said.
Still, news that the economy got over its winter slump is
likely to reassure Bank of England policymakers who last week
raised interest rates to a new post-financial crisis high of
0.75 percent despite concerns about the approach of Brexit.
Britain's government has yet to agree a divorce deal with
Brussels and has stepped up planning for the possibility of
leaving the bloc without any formal agreement.
Finance minister Philip Hammond said Brexit uncertainty was
having a "depressing effect" on Britain's economy but he said
growth would pick up to pre-referendum levels if the EU accepted
London's plan for their new relationship.
FACTORIES OFF 2017 PEAK
The ONS said the economy had been helped in the second
quarter by retail sales and construction recovering from heavy
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," ONS statistician Rob Kent-Smith
In June alone, the economy grew 0.1 percent after a 0.3
percent rise in May, weaker than forecasts in the Reuters poll
for a 0.2 percent expansion, the ONS said.
Growth over the second quarter was driven mostly by the
service sector, the ONS said.
Quarterly growth in household spending quickened slightly to
0.3 percent from 0.2 percent in the first quarter, but stood
only 1.1 percent higher than a year ago -- the weakest annual
increase since early 2012.
Consumers have struggled to cope with weak wage growth for
much of the past decade and a spike in inflation after the
Brexit vote only added to the problem. More recently, wages have
risen more quickly than inflation but there have been signs that
household finances remain stretched.
Retailers in particular have struggled. On Friday department
store chain House of Fraser was bought from its administrators
by discount retailer Sports Direct.
The ONS said business investment expanded 0.5 percent
quarter-on-quarter, barely outweighing a 0.4 percent drop in the
first quarter. The year-on-year rise of 0.8 percent in business
investment was the weakest since the end of 2016.
(Editing by Catherine Evans and Hugh Lawson)
First Published: 2018-08-10 11:26:18
Updated 2018-08-10 14:41:28
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