U.K. Economy Posts Lackluster Growth
July 26 2017 - 9:31AM
Dow Jones News
By Wiktor Szary and Jason Douglas
LONDON--U.K. economic growth remained subdued in the second
quarter, as a modest revival in consumer spending offset shrinking
industrial production, a sign that a hoped-for shift toward
export-led growth remains elusive.
Economists say that businesses--particularly exporters--will
need to take the baton from consumers squeezed by rising prices if
the U.K. economy is to avoid stuttering just as Britain's exit
talks with the European Union get under way.
Quarterly growth stood at 0.3% in the April-June period, the
U.K.'s Office for National Statistics said Wednesday, a slight
improvement on the 0.2% growth rate of the preceding quarter, but
still less than half the pace of growth at the end of last
year.
Proponents of Brexit have suggested that the pound's steep
depreciation in the wake of last year's referendum could boost
overseas demand for British products, strengthening the
manufacturing industry and decreasing the economy's reliance on
domestic demand. But so far, the economy has showed little sign of
that shift.
The expansion was driven largely by an improvement in
consumer-facing services, which rebounded on stronger retail sales,
a tentative sign that British shoppers could be returning to stores
after sharply paring down spending in the first quarter.
Growth was also supported by a strong performance from the film
industry, which has benefited from tax breaks introduced in 2014,
as well as Britons' appetite for blockbusters such as "Pirates of
the Caribbean: Dead Men Tell No Tales" and "Wonder Woman."
On an annualized basis, growth accelerated to 1.2%, from 0.9% in
the previous three-month period, the ONS said.
The second-quarter expansion was in line with the expectations
of economists polled by The Wall Street Journal. The data cover the
first three months of the two-year Brexit negotiation period. The
U.K. served its exit notice to Brussels on March 29, and
negotiations began in earnest last month.
"The weak performance in the industrial sector suggests that the
economy is not rebalancing towards net trade and investment, which
[Bank of England Governor] Mark Carney wants to see before raising
interest rates, " said Samuel Tombs, chief U.K. economist at
Pantheon Macro, a consultancy.
The sharp fall in the pound since last-year's Brexit vote
propelled annual inflation to a near-four-year high in May,
triggering a slowdown in consumer spending and inspiring hawkish
signals from certain BOE policymakers.
Price growth slowed unexpectedly in June, but remained well
above the BOE's inflation target, and above the pace of growth in
wages. Economists and policy makers expect inflation to accelerate
a little further over coming months.
Sluggish growth in the U.K. economy contrasts with a robust
expansion in the eurozone, a reversal of the trend in 2016. The
19-nation currency area expanded at the fastest rate in two years
in the first three months of the year, outpacing the U.K. and the
U.S.
Business surveys and industrial production data suggest the
expansion continued in the second quarter. Figures for April and
May showed output at eurozone factories, mines and utilities grew
strongly in the second quarter even as their British counterparts
stumbled.
The International Monetary Fund on Tuesday downgraded its growth
forecast for the U.K. this year. The fund said it expects the
economy to expand just 1.7%, compared with a previous estimate of
2.0%, reflecting first-quarter weakness.
Economists said the lackluster pace of growth will probably
persuade BOE officials to keep their benchmark interest rate on
hold when they announce their August policy decision next week.
Write to Wiktor Szary at Wiktor.Szary@wsj.com and Jason Douglas
at jason.douglas@wsj.com
(END) Dow Jones Newswires
July 26, 2017 09:16 ET (13:16 GMT)
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