Britain escapes Brexit ‘bomb’, for now

GDP growth in Q2 accelerates to 0.6%

LONDON: Britain’s consumers and businesses showed no sign of reining in their spending ahead of the country’s Brexit vote in June, official data showed yesterday, adding to signs that the economy went into the referendum in strong shape.

Households increased their spending by the most since before the financial crisis in the second quarter, the Office for National Statistics said.

The data also showed investment by businesses unexpectedly rose between April and June — a period which mostly covered the run-up to the shock decision by voters to leave the European Union on June 23 — compared with the previous three months.

“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,” Joe Grice, ONS chief economist, said in a statement.

Gross domestic product rose by 0.6% in the second quarter and was up by 2.2% compared with the same period last year, in line with preliminary readings and with forecasts in a Reuters poll of economists.

There have been signs that Britain’s economy did not suffer an immediate sharp slowdown after the Brexit vote, mostly thanks to continued spending by consumers.

But the April-June growth rate is widely expected to be a peak compared with the coming quarters because Britain’s economy is likely to slow sharply, or possibly even fall into recession, as a result of the Brexit vote, economists say.

The ONS data showed that during the second quarter the economy was its strongest in April before remaining flat in may and June.

Spending by households, who drove Britain’s economic recovery over the past three years, rose by 0.9 in the three months to June compared with the first quarter, the strongest increase since the July-September period of 2014, the ONS said.

In annual terms, a 3.0% increase in household spending was the strongest rise since the end of 2007.

Business investment increased by 0.5% on the quarter, confounding expectations in the Reuters poll for a fall and reversing a decrease in the first three months of the year.

In year-on-year terms, business investment was down 0.8%, matching a similar fall in the first quarter. It was the first consecutive fall in business investment in annual terms over two quarters since late 2009 and early 2010.

The Bank of England and the International Monetary Fund said earlier this year there were signs that uncertainty about the Brexit referendum was weighing on investment.

Some major investors in Britain, such as carmaker Nissan Motor, have said their investment plans will hinge on the country’s future trading arrangements, but others have pressed ahead with expansion and takeovers.

Nissan’s Sunderland plant in the north of England built nearly one in three of Britain’s 1.6 million cars last year and has been lauded as one of Europe’s most efficient facilities, where it builds the popular Qashqai sport utility vehicle.

But most of the site’s output is exported to Europe and Renault-Nissan Alliance chief executive Carlos Ghosn told the BBC that Nissan and other companies were waiting to see the outcome of Brexit talks before making new investment decisions.

“The question is what’s going to happen in terms of customs, what’s going to happen in terms of trade, what’s going to happen in terms of circulation, particularly of the products,” he said.

“All of these are very sensitive elements that are going to determine, how and how much we are going to invest in the UK particularly for the European market.”

The ONS data showed trade dragged on overall economic growth in Britain in the April-June period but there have been signs that the post-referendum slump in the value of the pound is giving exporters some help.

A survey published this week showed manufacturers’ export orders rising at their fastest pace in two years in August.