The British economy pulled out of a one-month downturn to return to growth in May as carmakers resumed production in the wake of shutdowns for the original Brexit deadline.
The Office for National Statistics (ONS) said UK GDP rose by 0.3% from a month earlier, when stoppages at car plants resulted in negative growth of 0.4%.
However, some economists said Britain remains on the cusp of its first quarterly contraction since 2012 amid a gathering slowdown in the world economy and the rising threat of a no-deal Brexit.
The National Institute of Economic and Social Research (NIESR), one of the UK’s leading economic forecasters, said on Wednesday it still expected a fall in GDP of 0.1% in the three months to June as Brexit-related uncertainty takes its toll.
While suggesting the economy would probably rebound in the third quarter, narrowly avoiding a technical recession, the institute said the latest snapshot from the ONS showed the economy had still lost momentum since the start of the year.
Economic growth on a rolling three-month basis slowed to 0.3% between March and May, from 0.4% for the three months to April. The ONS argues that single-month growth figures can prove volatile, preferring to assess the economy over a three-month period.
For the monthly figure, revived car production played a key role. Factory output rose by 1.4% in May after a sharp drop of 4.2% in April, with the ONS finding that a partial bounceback from car production had driven up growth. Despite the recovery among car manufacturers, production levels remain below the rate recorded in the first three months of 2019, indicating that pressure still remains for the industry.
Manufacturers across the UK rushed to stockpile goods in the run-up to the original Brexit deadline of 29 March – driving up economic growth – as they braced for disruption to supply chains from a no-deal departure.
Carmakers brought forward their annual maintenance shutdowns to April, which would have been immediately after Britain left the EU, to avoid the potential chaos from border delays at UK ports.
Rob Kent-Smith, the head of GDP at the ONS, said: “GDP grew moderately in the latest three months, with IT, communications and retail showing strength.
Gross domestic product (GDP) measures the total value of activity in the economy over a given period of time.
Put simply, if GDP is up on the previous three months, the economy is growing; if it is down, it is contracting. Two or more consecutive quarters of contraction are considered to be a recession.
GDP is the sum of all goods and services produced in the economy, including the service sector, manufacturing, construction, energy, agriculture and government. Several key activities are not counted, such as unpaid work in the home.
The ONS uses three measures that should, in theory, add up to the same number.
• The value of all goods and services produced – known as the output or production measure.
• The value of the income generated from company profits and wages – known as the income measure.
• The value of goods and services purchased by households, government, business (in terms of investment in machinery and buildings) and from overseas – known as the expenditure measure.
Economists are concerned with the real rate of change of GDP, which accounts for how the economy is performing after inflation.
Britain's government statistics body, the Office for National Statistics, produces GDP figures on a monthly basis about six weeks after the end of the month. It compares the change in GDP month on month, as well as over a three-month period.
The ONS warns that changes on the month can prove volatile, preferring to assess economic performance over a three-month period as the wider period can smooth over irregularities.
The most closely watched GDP figures are for the four quarters of the year; for the three months to March, June, September and December.
The figures are usually revised in subsequent months as more data from businesses and the government becomes available.
The ONS also calculates the size of the UK economy relative to the number of people living here. GDP per capita shows whether we are actually getting richer or poorer, by stripping out the impact of population changes.
Richard Partington
“Despite this, there has been a longer-term slowdown in the often-dominant services sector since summer 2018.”
Growth in Britain’s services sector, which accounts for about 80% of the economy, remained steady at 0.3% in the three months to May compared with the three months to April. The ONS said there had been a notable slowdown for the sector – which includes banks, hotels and restaurants – since July 2018.
Analysts warned the economy could still shrink in the second quarter as no-deal Brexit fears mount, with closely watched surveys of business activity suggesting negative growth of 0.1% in the three months to June.
Figures from the British Retail Consortium this week showed annual consumer spending growth slowed in June to the weakest rate since records began in 1995.
The slowdown in Britain as fears mount over no-deal Brexit coincides with weaker levels of growth elsewhere around the world as tensions between the US and China drag down international trade volumes.
Suren Thiru, the head of economics at the British Chambers of Commerce, said: “The continued slowdown on the underlying three-month measure is further evidence that the UK economy is faltering under the weight of relentless Brexit uncertainty and tougher global economic conditions.”
Despite sluggish global trade volumes, Britain’s trade deficit, measuring the shortfall between exports and imports, narrowed by £400m to £2.3bn in May. Economists said demand for imports had slumped as firms chose to maintain or run down their stocks, rather than place new orders for materials from the continent, after the extension of the Brexit deadline.
John Hawksworth, the chief economist at accountancy firm PriceWaterhouseCoopers, said the underlying picture of the economy was one of modest growth. On an annual basis, GDP is growing by between 1% and 1.5%, below the long-term historical average of about 2% as Brexit uncertainty prevents companies from fully committing to investing in the UK.
“There are no signs yet that Brexit-related uncertainty has pushed the economy as a whole into recession, although it has clearly dampened business investment and the housing market,” Hawksworth said.
