Manufacturing the standout
At a more granular level, the production industries were the standout performer. According to the ONS, all four of the main production aggregates increased with manufacturing the key driver, growing by 1.8% in Quarter 2 2016 following a decrease of 0.2% in Quarter 1 2016. This jump accounted for 0.37 percentage points of the 0.6% move the ONS said.
Energy supply rose 4.7% following an increase of 0.7% in Q1; water and waste management grew 2.6% in Q2 compared to a 2.4% increase in Q1; and mining and quarrying increasing by 1.4% in Quarter 2 2016 following a decrease of 2.2% in Q1.
Over the same period, all four of the main services aggregates, distribution, hotels and restaurants; transport, storage and communication; business services and finance; and government and other services) increased, but at a slower rate (0.5%) than in Q1, when they grew on average by 0.7%.
Chancellor of the Exchequer, Phillip Hammond was quick to highlight the growth in production, tweeting: “#GDP growth of 0.6% in Q2 2016 shows UK economic fundamentals are strong with biggest quarterly rise in production for nearly 20 years.”
As did Brettell who pointed out that with confidence this low, a recession can become a self-fulfilling prophecy.
But, he added that there are also tentative signs things might not turn out as bad as the doom-mongers predicted before the vote.
“A Bank of England survey this month found no clear evidence of a slowing in economic activity, while there has been a raft of good news from the corporate sector. For example, GlaxoSmithKline has announced a £275m investment programme to expand its UK manufacturing operations, and this morning’s statement from Taylor Wimpey said the housebuilder had seen ‘no meaningful change’ in trading as a result of the referendum. There also seems to be growing optimism the UK can retain access to the EU’s single market in the event of Brexit.”
However, while the increase in production was significant, it is worth considering it in a longer context.
As can be seen from the ONS graph above, while production has increased, it remains significantly below its pre-crisis level, which serves to highlight once again how much of the post-crisis recovery in UK GDP has come from the services sector, which now accounts for 78% of the total.
