U.K. Economy Rebounds But Services End Quarter on a Weak Note

(Bloomberg) -- The U.K. economy bounced back from its turgid start to the year in the second quarter but the dominant services sector lost momentum toward the end of the period.

Gross domestic product increased 0.4 percent between April and June, in line with the median forecast in a Bloomberg survey, figures from the Office for National Statistics Friday showed.

In June alone, output gained just 0.1 percent, its weakest performance since March. While manufacturing and construction posted reasonable gains, services output was entirely unchanged with hotels and restaurants and business services and finance both recording declines.

With an annualized expansion of 1.5 percent in the second quarter, growth is back to the rate the Bank of England estimates to be the economy’s speed limit. Still, the slowdown in June may give ammunition to those who say Governor Mark Carney and his colleagues acted too early when they raised the benchmark interest rate to the highest since 2009 last week.

The pound was 0.5 percent lower at $1.2756 as of 9:34 a.m. in London. The currency is set for a seventh day of losses against the dollar, a run that has taken it to the weakest since June 2017. Investors also slightly cut bets on the pace of BOE rates increases.

A big question mark over the economy, and BOE action, remains Brexit, with a lack of clarity over the U.K.’s future relationship with the European Union putting investment decisions at risk. Investors are betting the BOE won’t act again before Britain quits the EU in March.

Weather Boost

The statistics office said good weather lifted retail sales and construction, suggesting the reasons behind the second quarter’s relative strength may be just as transient as the snow and storms that caused a near standstill at the start of 2018.

Growth in the second quarter was driven by services, with the best quarter for the sector since the end of 2016 offsetting the worst manufacturing performance since 2012. Construction rebounded, recovering the weather-related losses it incurred in the first quarter.

Consumer spending rose 0.3 percent and business investment increased 0.5 percent. Net trade acted as a drag on the economy as the deficit in goods and services widened. The value of goods exports fell 3.6 percent, the biggest decline in a calendar quarter in almost three years, as shipments of cars and planes declined sharply. Imports rose 2 percent.

--With assistance from Mark Evans and Harumi Ichikura.

To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Andrew Atkinson

©2018 Bloomberg L.P.