United Kingdom economy gathers speed

The ONS reported strong demand for clothing and footwear in June

Ruth Gregory, senior economist at Capital Economics, said growth would have been weaker had it not been for a big contribution from inventories, offsetting a "whopping" 0.8 percentage-point drag on growth from net trade, which was still down 0.5pp even excluding the volatile valuables component.

Retailers in particular have struggled against weak household spending. Sterling, shaken over the last week by growing talk of a no-deal Brexit, was little moved by the data which showed businesses remained reluctant to raise investment.

According to data published by the Office for National Statistics (ONS), the United Kingdom economy expanded 0.4 per cent in the second quarter, up from just 0.2 per cent at the start of the year.

"However, manufacturing continued to fall back from its high point at the end of previous year and underlying growth remained modest by historical standards".

The improvement in the economy in the second quarter of 2018 will come as welcome news following the Bank of England interest rate rise to 0.75%.

On Friday department store chain House of Fraser was bought from its administrators The ONS said business investment expanded 0.5 percent quarter-on-quarter, barely outweighing a 0.4 percent drop in the first quarter.

The increase in GDP was driven by strong growth in both the services and construction industries.

Data released by the ONS also showed a 0.3 per cent rise in household spending, though employee pay growth slowed to 0.6 per cent from 1.1 per cent in the first quarter, due to weaker growth in wages.

However, the heatwave led to a 2.7% decline in production for energy suppliers. Meanwhile, mining and quarrying, and waste management production both rose by 0.7% and 1.9% respectively.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said in today's economic climate, 0.4% quarterly growth "draws a small cheer from the crowd", but in the ten years running up to the crisis, United Kingdom economic growth averaged 0.73% per quarter. The BoE also maintained its 2018 economic outlook, describing a first quarter slowdown as "temporary" with momentum set to recover in the second quarter despite widespread trade-linked worries over the global economy.

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