UK GDP at 0.6% Official Sources Confirm, Pound Falls Against Dollar

The UK economy grew by 0.6% in the second quarter of this year, as the UK’s Office of National Statistics (ONS), confirmed the figure that was released at the end of last month, quarter on quarter the economy expanded by 0.2%, in data that was expected by most analysts.

The influential manufacturing sector was the main driver of economic activity growing by 1.8%, closely followed by the all important service sector which progressed at 0.5% from April to June, GDP on an annual basis grew by 2.2%.

Consumers are also not feeling that the uncertainty of the decision to leave the European Union should crimp their buying power, as spending increased by 0.9%, which was then highest increase since the third quarter two years ago, annually consumer outlays were higher by a more significant 3%.

The biggest surprise from the ONS data is that business investment saw a considerable turnaround, as investment grew by 0.5% in the second quarter, a stark comparison to the first three months of the year, when it had fallen by 0.6% from the previous quarter last year, although in contrast to the same period last year, investment was down b 0.8%.

Overall, the UK trade balance was a drag on the economy as imports grew by 1%, accelerating at a far faster pace than exports which increased its sales by 0.1%, earlier this month official figures revealed that the UK’s trade deficit on goods and services rose by £5.1 billion in May.

ONS chief economist Joe Grice said: “Today’s figures reinforce the picture that the economy grew strongly in April, and then remained relatively flat in May and June.”

“Business Investment grew in the second quarter, partly thanks to companies spending on transport equipment such as cars and planes. However, levels of investment remained lower than at the same period last year.”

“Our survey returns, which include the period leading up to and immediately following the referendum, show no sign so far of uncertainty having significantly affected investment or GDP.”

The pound dipped slightly after the confirmation of the GDP figures, as the GBP/USD rate fell to $1.320 from $1.322 this morning GMT, throughout yesterday the pound lost ground on the dollar, perhaps due to profit taking in expectation of the crucial speech by Federal Chair Janet Yellen this afternoon GMT in Wyoming.

FC Exchange said in their daily report, that it would appear that many traders have repositioned themselves with newly placed trades at improved levels given the recent pound rally, while the overall feeling may be against the UK currency, the last couple of weeks have provided food for thought.

The confirmation of the second quarter GDP still does not answer all of the questions that are posed by the ‘Brexit’ decision, other figures such as record levels of employment that was recently disclosed, came before the onset of the EU referendum.

While retail sales increased by 1,4% the ONS said yesterday, which contradicted earlier figures for July from the Confederation of British Industry which suggested a sharp fall in activity on the high street declining to a four year low, it is also far too early to say how the historical low 0.25% interest rate will affect economic growth.