UK economy grew 0.3pc in second quarter, NIESR and others predict

British gross national product grew 0.3% in the second quarter of 2017, the National Institute of Economic and Social Research has predicted.

NIESR's monthly estimates of GDP suggest that the UK's national output grew 0.3% in the three months ending in June 2017.

This would represent a disappointingly small improvement on the 0.2% official GDP growth figure from the first quarter.

Rebecca Piggott, research fellow at NIESR, which has a strong track record in predicting the official number, noted that growth in services has offset a contraction in industrial output, yet remains subdued when compared with last year.

"The saving ratio reached an historic low of 1.7 per cent in the first quarter of this year, implying that, so far, households have reduced their saving to cushion the effect of falling real incomes on consumption as inflation rises."

Other economic forecasters also predicted a similar reading for the second quarter after the negative data for May from the Office for National Statistics earlier on Friday.

Howard Archer, chief economic advisor to the EY ITEM Club, said with May's disappointing manufacturing and construction readings coming on the back of several months of soft data, it was now "virtually certain" that both sectors will drag on GDP growth in the quarter.

“Based on today’s data and the business survey results for June, we now think that industrial production is likely to have contracted by 0.5% in Q2, with construction output down 1.8%.

"And though an improved performance from the services sector will provide some support, GDP is likely to have grown by just 0.3% with the risks to that projection skewed to the downside.”

Fathom Consulting's Joanna Davies also forecast 0.3% GDP growth the second quarter, which while a slight improvement on the first, would be "unlikely by itself to dissuade the more hawkish members of the MPC from voting for a hike" but still meaning the Bank of England's rate-setting meeting next month remains a close call.

Markets have reacted both to June's 5-3 split vote and to chief economist Andy Haldane's apparent change of heart by pricing in a 25 basis point hike within a year.

"But with economic growth set to soften further through the second half of this year, either the Committee will pull the trigger next month, or rates are on hold more or less indefinitely, Davies said. "We suspect it will be the latter."

Samuel Tombs at Pantheon Macroeconomics went further, doubting that GDP growth will have improved on Q1’s 0.2% rise, thus increasing the likelihood that the Monetary Policy Committee will stand pat next month.

Looking to June, Tombs said the continuation of warmer-than-usual weather suggests that output in the energy supply sector will not recover fully from May’s decline, while estimates of production volumes at the start of the month point to lower output in June, although they had signalled a pickup in May.

"So even if the official manufacturing data start to narrow the gap with the surveys, overall production likely struggled to rise much in June," he added, anticipating a modest 0.4% month-to-month rise in production in June, which would leave it down 0.4% quarter-on-quarter.

"Production therefore would subtract 0.06 percentage points from quarter-on-quarter GDP growth in Q2. So, with construction output on course to have fallen in Q2 too and signs of a slowdown in the consumer services sector emerging from surveys, we doubt that GDP growth improved on Q1’s 0.2% rise in Q2."