Flagging construction and industrial production output expected to hit UK GDP growth

Economists are predicting GDP growth of 0.3% in the second quarter. Byline: Sonya Duncan Copyright:

Economists are predicting GDP growth of 0.3% in the second quarter. Byline: Sonya Duncan Copyright: Archant 2016 - Credit: Sonya Duncan

The drag of flagging industrial production and construction on second-quarter growth is expected to keep the UK's economy in the doldrums.

Economists are expecting official figures, released on Wednesday, to show an expansion in gross domestic product (GDP) of 0.3% between April and June.

It would mark a minor improvement on first-quarter growth, which reached 0.2% due to a stuttering service sector caused by inflation's squeeze on consumer spending.

The Office for National Statistics (ONS) revised down its initial estimate for the first three months of the year from 0.3% to 0.2%, indicating an even deeper slowdown compared with the 0.7% growth seen in the fourth quarter of last year.

Howard Archer, chief economic adviser to EY Item Club, is pencilling in 0.3% growth for the second quarter, but said a rebound may not materialise.

He said: 'It looks odds-on that whatever growth the UK managed to eke out in the second quarter will have been solely due to the services sector.

'This does appear to have seen some pick-up in activity after a particularly weak first-quarter performance.

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'Industrial production and, especially, construction output both fell month-on-month in April and May, and were clearly on course for contraction over the second quarter.

'Despite decent overall manufacturing surveys for June, we suspect industrial production could have contracted by around 0.4% quarter-on-quarter in the second quarter while construction output may have fallen by around 1.7% quarter-on-quarter.

'This will obviously have held back UK GDP growth in the second quarter, although it needs to be borne in mind that industrial production's share of GDP is limited to 14.6% while construction only accounts for 5.9%.'

The second-quarter update comes after a series of downgrades from economists who are anticipating GDP to slow in the coming years as Britain embarks on its EU divorce.

The likelihood of the Bank's Monetary Policy Committee (MPC) hiking interest rates from record lows of 0.25% shifted down a gear on Tuesday when the latest inflation figures came in at 2.6% for June, down from a near four-year high of 2.9% in May.