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GDP sees 0.4% growth but still ‘playing catch-up’

Paloma Kubiak
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Paloma Kubiak

UK Gross Domestic Product (GDP) was estimated to have grown 0.4% in the second quarter of 2018, rebounding from the 0.2% reported in the first three months of the year.

The latest figures from the Office for National Statistics, revealed that the services industries grew 0.5%, the strongest reading since the end of 2016, while construction increased 0.9%, though this is still behind last year’s reading.  

But the positive trend was offset by a 0.8% reduction in production, the weakest quarterly growth since Q4 2012. This was driven by a 0.9% fall in manufacturing and a 2.7% fall in energy supply, while mining and quarrying, and waste management production both rose by 0.7% and 1.9% respectively.

While the figures – in line with expectations – show a rebound from the 0.2% reported in the first quarter of the year, the UK hasn’t recovered lost ground.

Anthony Gillham, Quilter Investors head of investment, said: “There is an important distinction to be made here – the economy is growing faster than it did in the first quarter, but it is still playing catch-up.

“While growth has improved slightly, it does so from a low starting point. Over the medium term, UK growth has been thoroughly unspectacular, with the domestic economy expanding at a slower pace than most developed countries.

“There is a real risk of stagflation on the horizon. The UK finds itself in a difficult situation where the Bank of England is hiking rates to try and keep a lid on import costs that drive up inflation, but it is doing so against the backdrop of weak economic growth.”

Laith Khalaf, senior analyst at Hargreaves Lansdown, said in today’s economic climate, 0.4% quarterly growth “draws a small cheer from the crowd”, but in the ten years running up to the crisis, UK economic growth averaged 0.73% per quarter.

“Indeed a rather less than encouraging assessment of the UK’s economic prospects can be found in the performance of the pound, which has slipped back below $1.30 against the dollar in the last week, despite a rise in UK interest rates. Fears over the potentially negative impact of Brexit clearly play a part in this.

“This suggests the shackles are still on the UK economy, and that spells more or the same in terms of interest rate policy for the foreseeable future. There are also only a limited number of big sporting events, heatwaves and royal marriages which can bail the economy out.”