GDP growth forecast to pick-up despite Brexit vote

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Britain’s GDP growth unexpectedly picked up in the second quarter of 2016 in the run-up to the Brexit referendum, according to the latest regular forecast from the National Institute of Economic and Social Research (NIESR).

NIESR estimates that GDP grew by 0.6 per cent in the three months to June, up from the 0.4 per cent rate in the first quarter of the year reported by the Office for National Statistics.

This upturn comes despite widespread expectations that GDP growth was already slowing going into the referendum and is likely to be seized upon by pro-Brexit politicians as an indication that the economy is not suffering as much as many downbeat analysts claim.

But Jack Meaning, Research Fellow at NIESR cautioned against reading much into its latest surprisingly strong headline growth forecast, pointing to underlying signs of weakness in the data.

He said: “At first glance this represents a robust rate of quarterly growth for the UK economy. However, the quarterly figure masks an important within-quarter pattern. Our monthly estimates suggest that April saw a large expansion in GDP, which then stagnated in May”.

“The estimate for June is one of an intensifying contraction across the board, but this is not enough to offset the very strong April numbers. What it does suggest is that when April drops out of the 3 month calculation we should see a quick deterioration of growth, especially if the estimated contraction in June persists or accelerates into July and beyond.”

A majority of economists surveyed by Bloomberg now expect the UK to slip into recession, defined as at least two consecutive quarters of contraction. in the wake of the Brexit vote.

The ONS will release its first estimate of second quarter GDP growth on 27 July. This will be watched closely by analysts for signs of a pre-vote output slowdown, but most of the hard official data showing how consumer spending and business investment is responding in the wake of the Brexit vote will not come until late August and September.