Industrial production provides surprise boost for UK economy

The Office for National Statistics (ONS) said gross domestic product (GDP) grew by 0.6% in its initial estimate for the second quarter, up from 0.4% in the first quarter of 2016.

The higher-than-expected figure was driven in part by a swing in industrial production, which rose 2.1% over the period - matching figures last seen 17 years ago - compared with a 0.2% fall in the quarter before.

Britain’s dominant services sector, which accounts for more than 78% of the UK economy, grew by 0.5% in the second quarter, edging down from 0.6% in the first three months of the year.

However, economic growth was hampered by construction and agriculture, which fell 0.4% and 1% respectively over the period.

The GDP update came as separate figures for the services sector showed that output slipped by 0.1% between April and May, down from a 0.6% rise the month before.

ONS chief economist Joe Grice said uncertainty in the weeks leading up to the referendum had “limited effect” on the economy, with only a small number of companies surveyed by the organisation saying it had negatively impacted their business.

He added: “Continued strong growth across services, particularly in retailing, reinforced by healthy growth in the manufacture of cars and pharmaceuticals, boosted output in the second quarter.”

The rise in GDP came in above economists’ expectations of 0.5% growth, with many tipping the economy to maintain momentum ahead of Britain’s vote on the European Union.

Chancellor Philip Hammond said the GDP figures showed the fundamentals of the UK economy were strong.

He added: “We saw the strongest quarterly rise in production for nearly 20 years, so it is clear we enter our negotiations to leave the EU from a position of economic strength.”

However, the latest economic data since the referendum suggests dark clouds are gathering over the UK economy, with Friday’s flash PMI survey showing 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 rate since January 2009.