UK GDP grew 0.3% in the three months to May, according to the first monthly figures released by the Office of National Statistics.
The figures are an improvement on 0.1% – the GDP growth rate in Q1.
“While the news is undoubtedly positive, the usual concerns will no doubt surface around the bias towards the service sector, which drove the growth,” says Hargreaves Lansdown senior economist Ben Brettell.
Industrial production and construction both fell in the quarter.
The services sector grew 0.4% over the three-month period with retailers in particular doing well, due to the royal wedding and the warm weather.
Brexit blueprint
Theresa May (pictured) won the backing of her cabinet on Friday to pursue a close relationship with the EU for goods following Brexit, but services were left out of the plan, despite representing 80% of the UK economy.
Brexit minister David Davis and foreign secretary Boris Johnson have since resigned arguing the Brexit blueprint was too soft.
AJ Bell investment director Russ Mould expected Brexit implications for financial services would soon start to filter through in GDP figures.
“You are seeing more and more companies coming up with contingency plans and firm plans for hiring whether it’s in Dublin, Frankfurt, Brussels, Amsterdam,” Mould told Portfolio Adviser.
Bank of England
Markets are now pricing in a 78% chance of a rise at its August meeting.
However, Brettell believes there’s a significant chance of a no change decision.
He says: “The second quarter is likely to see a small uptick in GDP, but when added to the below par first quarter, this means growth in the first half of the year will be decidedly sub-trend.
“I can’t see how this makes a particularly strong case for higher rates at present, particularly as Brexit uncertainty casts an increasingly threatening shadow.”
Mould warned the monthly GDP figures risked creating information overload. The inflation outlook for the next two to three years time was more important than GDP impacts of unseasonable weather and football, he said.
“Micromanaging the economy is extraordinarily difficult, even by experts in their field,” he added.
