British economy continues to defy Brexit

No, the British economy is certainly not buoyant at the moment. However, considering that the UK will leave the EU in only seven months’ time, and with no sign as yet of a negotiated settlement with Brussels, the country’s moderate economic growth is certainly impressive. The pace of growth even accelerated slightly in the second quarter compared to the previous quarter. The economy grew by 0.4 per cent in the spring months – compared to only 0.2 per cent at the beginning of the year. The UK has therefore even slightly overtaken the EMU again recently in terms of growth.

However, the demand components for the last quarter look less promising. Private consumption, which braked economic growth significantly last year, has also remained muted lately, despite a sharp rise in retail sales in recent months because inflation has fallen again slightly. True, investment activity has turned positive again, with building production expanding particularly strongly. However, this sector has benefited crucially from good summer weather – also in the British Isles. This does not represent a sustained turnaround for the construction industry.

Foreign trade has ultimately dented economic growth by around ¾ percentage points. Exports have fallen by a good 3½ per cent – a steeper decline than at any time in the last six years. Conversely, imports were only slightly negative. The export sales figures of British carmakers in particular have been considerably lower recently. The manufacturing sector has also reported its steepest quarterly decline since the end of 2012. Falling sales were balanced out by substantial stockbuilding. For the first time in a year, British companies have replenished their stock levels again.

The British economy continues to demonstrate considerable resilience to home-grown uncertainties, as well as the deterioration in the international competitive environment. It is nevertheless embattled. The impending Brexit has already “cost” about 1 per cent of economic growth – average growth of 1.2 per cent in the last three quarters represents a virtual halving of the rate of expansion. What at first glance appears to be a very positive growth result for the second quarter cannot be “sugarcoated” as a turnaround. The British economy is much more likely to continue to lose momentum again in the second half, particularly since the risk of a “no deal” Brexit is growing day by day.

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