UK ‘in position of economic strength’ for Brexit talks

LONDON — Britain will enter European Union exit talks in a strong position, Finance Minister Philip Hammond declared yesterday, after data revealed economic growth unexpectedly accelerated in the run-up to the Brexit referendum.

Gross domestic product (GDP) grew 0.6 per cent in the second quarter from 0.4 per cent in the first, as activity was boosted by rebounding industrial production, advance estimates by the Office for National Statistics showed. The median forecast in a Bloomberg survey was for an expansion of 0.5 per cent.

“Today’s GDP figures show that the fundamentals of the British economy are strong,” said Mr Hammond. “In the second quarter of this year our economy grew by 0.6 per cent —faster than was expected. Indeed we saw the strongest quarterly rise in production for nearly 20 years, so it is clear we enter our negotiations to leave the EU from a position of economic strength.”

Much has been changed by the Brexit vote, however, and the pickup may mark the end of more than three years of uninterrupted growth.

Recent surveys suggest the June 23 vote delivered an immediate blow to business and consumer sentiment, with retail sales falling the most in more than four years in July. Economists predict gross domestic product will fall this quarter and next, putting Britain into its first recession since 2009.

“We have limited data on the economy post-referendum, but what we do have points towards a significant deterioration,” said Mr Simon Kirby, an economist at the National Institute of Economic and Social Research.

The loss of confidence could hit investment, jobs and consumer spending, piling pressure on Bank of England Governor Mark Carney and Prime Minister Theresa May to deliver monetary and fiscal stimulus.

Mr Hammond said again after the data that the government had the tools to support the economy as it entered a “period of adjustment” as it prepared to leave the EU.

“Along with the Bank of England, this government will take whatever action is necessary,” he said.

Services, the largest part of the economy, grew 0.5 per cent in the second quarter. Industrial production expanded 2.1 per cent, the biggest increase since 1999, as manufacturing jumped 1.8 per cent and energy output surged. Construction fell 0.4 per cent. GDP rose 2.2 per cent from a year earlier.

Growth was skewed toward the start of the quarter, with all three sectors posting strong gains in April. Services and industrial production were broadly flat over the following two months and construction declined, suggesting activity was weakening prior to the referendum. The estimate is the first for the quarter and is based on less than half of the data that will inform later reports.

In a survey taken in the aftermath of the referendum, Markit Economics found business activity contracting at the fastest pace since the last recession seven years ago. Agencies