Economy expected to post growth slowdown as GDP figures are published

The UK economy is expected to post a slowdown in growth when official gross domestic product (GDP) figures are published on Wednesday.

GDP is forecast to ease back to 0.3% in the second quarter of 2016, down from 0.4% in the first quarter, amid mounting uncertainty in the run up to Britain's referendum on the European Union.

However, some economists are pencilling in GDP to notch up 0.5% after a string of reports showed a mixed picture for the UK economy ahead of the Brexit vote.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said the ONS first estimate for second quarter GDP will signal whether the UK economy headed into the EU referendum from a position of strength.

He added: "First, it will tell us if the referendum gave the UK economy the jitters in the lead up to the vote.

"There are several indicators which have pointed to a slowdown in economic activity as the referendum approached.

"Now we know the outcome of the vote, tomorrow's figures will also indicate whether we are entering the implementation of a Brexit from a position of strength, or as seems more likely, a position of weakness."

"Tomorrow's number therefore sets the scene for monetary and fiscal policy to come. In particular the question of whether the Bank of England will cut interest rates next week.

"The markets seem to think it will, they are currently pricing in a 95% chance of a rate cut, though don't forget they got it badly wrong last time around."

The latest update on UK GDP comes after the UK's manufacturing industry drove home a better-than-expected fall of 0.5% in May, dropping down from April's rise of 2.4%, but remaining ahead of a predicted slide of 1.1%.

Economists branded the performance ''resilient'', as manufacturing output rose 1.7% in May compared with the same month in 2015.

But the UK construction output fell by more than expected over the same period, with output contracting 2.1% compared with April and 1.9% year on year, according to the ONS.

Howard Archer, chief UK and European economist for IHS Global Insight, said the bulk of the available evidence showed GDP growth was "relatively resilient in the second quarter".

He added: "Retail sales volumes expanded 1.6% quarter-on-quarter in the second quarter, while much-improved industrial production in April and May combined, and a significantly reduced trade deficit in April and May overall were growth.

"However, construction activity was muted overall in April/May while the economy likely struggled substantially in June.

"Furthermore, the purchasing managers reported overall services, manufacturing and construction output growth was at its lowest level since the first quarter of 2013 in the second quarter."

The latest economic data since the referendum result suggest dark clouds are now gathering over the UK economy, with Friday's flash PMI survey showing that UK economic growth had slumped at its fastest rate since the financial crisis.

Companies also revealed a gloomy outlook for trade in the latest CBI Industrial Trends Survey on Monday, with business optimism deteriorating at its fastest pace since January 2009.

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