This article is more than 2 years old

This article is more than 2 years old

Warmer weather helped the British economy grow at a faster pace in the three months to the end of June, despite official figures showing the manufacturing sector slumped into recession for the first time since the Brexit vote.

The Office for National Statistics (ONS) said GDP increased by 0.4% in the second quarter from a rate of 0.2% in the previous three months, helped by stronger retail sales and good weather, which enabled the construction industry to make up lost ground from heavy snow earlier this year.

The better news for the economy came after the Bank of England raised interest rates to 0.75% last week, their highest level since the financial crisis a decade ago. Threadneedle Street had forecast an average growth rate of about 0.4% in the second quarter.

Philip Hammond, the chancellor, said Brexit uncertainty was depressing economic growth, as he used a trip to West Midlands on Friday to unveil £780m of new funding for high-tech industries.

“We are working hard to build a stronger, fairer economy – dealing with the deficit, helping people into work, and cutting taxes for individuals and businesses,” he said.

John McDonnell, the shadow chancellor, said austerity under the Conservatives had “created an economy unable to cope with the instability brought about by the Tories’ mismanagement of the Brexit negotiations”.

Service industries experienced robust growth of 0.5% in the second quarter, with the retail and wholesale sectors providing the strongest contribution, helped by the warm weather tempting shoppers back to the high street.

Q&A What is gross domestic product (GDP)? Show Hide 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

However, the latest snapshot from the ONS painted a lopsided picture for economic growth, with Britain increasingly reliant on the services sector amid a downturn for factory output. There were also indications of slowing growth in June, with the ONS figures showing May was the strongest month of the second quarter.

The manufacturing industry recorded its second consecutive quarter of negative growth since the first quarter of 2016 – meeting the official conditions for an economic recession – amid weaker international demand for British goods. While manufacturing output fell by 0.9%, the sector is smaller than the dominant services industry, meaning its drag on overall economic growth was only about 0.1%.

The greatest falls in output were reserved for factories producing metal products and electrical equipment, where exports are important. Lee Hopley, the chief economist at the EEF manufacturers’ organisation, said the industry could face tough conditions ahead.

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“The autumn Brexit negotiations and related focus on the risk of ‘no deal’ will increase uncertainty,” she said.

Growth in the production industries – which include mining and energy alongside the manufacturing sector – fell by 0.8% as the warm weather reduced demand for heating. Maintenance work at the Sullom Voe oil terminal on Shetland in May also cut energy production.

The figures showed trade acted as a drag on GDP growth in the second quarter, suggesting there was no longer a boost for manufacturers from the weak pound – making sales of UK-made goods since the EU referendum more competitive.

Britain’s trade deficit – the difference between imports and exports – widened by £4.7bn to reach £8.6bn in the three months to June, due mainly to falling exports of goods and higher levels of imports.

The figures also showed the UK becoming more reliant on the EU for trade, despite the efforts of ministers to drum up interest elsewhere around the world. Over the past year, exports and imports of goods to and from the EU increased by more compared with non-EU countries.

Suren Thiru, the head of economics at the British Chambers of Commerce said: “Despite growth in the second quarter, there is little in the latest data to suggest a sustained upturn in the UK’s economic growth prospects.”