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Strong growth before referendum, but confidence will be key to what happens next

27 Jul 2016

Construction workers on a building site at duskCommenting on today’s GDP figures for April to June 2016 up 0.4% from the previous quarter, Michael Martins, Economist at Institute of Directors, said:

“Today’s growth figures tell us where we were before the referendum. They don’t predict what will happen next, but they do show how various parts of the economy were performing up until the end of June.

“Gross Domestic Product grew by the second largest amount in a year and a half, reaching its highest level on record, driven mainly by large growth in the manufacturing sector. This was a welcome element of the figures, as manufacturing has shrunk during same period in four of the past six years, and now only makes up around 15% of UK GDP. Manufacturing has high upfront sunk costs and longer time horizons, so it is possible the growth was due to firms running down their inventory as a precautionary measure prior to the referendum.

“The service sector as a whole grew, but the financial and business services sectors, which are the most exposed to the EU and global economies, grew at a slower rate than the quarter before, highlighting the uncertainty under which these firms were operating at the time.

“Construction’s contribution to the economy decreased, although it had grown during the same time in four of the past six years. This coincided with a fall of confidence in the sector. We can only hope confidence rebounds, which would be helped by the Prime Minister bringing forward her plans to dramatically increase house-building in the UK.” 

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