The recent economic statistics released by the ONS on the surface look good. We had 0.6% GDP growth in the second quarter, which, by historical standards, is quite respectable and close to the normal trend. I’ve always thought the long-term success or failure of Brexit would be seen in the economy. If the UK grows more quickly than the EU, Brexiteers will feel vindicated and if that growth trickles down into the pockets of Jill and Joe Public, thoughts of rejoining will fade. But if the reverse happens - as I expect - rejoining is a certainty, whatever Starmer thinks. At the moment, we are growing faster than most EU countries and it would be churlish not to acknowledge that.
However, buried in the latest release are some not-so-welcome figures. Business Investment is down by 0.1% as is production and the construction sector. The growth is largely down to a 0.8% rise in services.
The ONS says:
"The largest contributor to the growth in services output was a 2.5% increase in the professional, scientific and technical activities subsector. Within this subsector, scientific research and development is estimated to have increased by 11.0%, last higher in Quarter 1 2020. There was also strength in legal activities, and architectural and engineering activities this quarter."
In goods, the ONS said:
"The production sector is estimated to have fallen by 0.1% in Quarter 2 2024 following growth of 0.6% in Quarter 1 2024. This reflects a fall of 1.0% in April 2024, which was partially recovered by growth in May and June 2024. In Quarter 2 2024, production output is estimated at 0.6% below the same quarter a year ago.
"Within production, manufacturing was the largest negative contributor with 9 out of the 13 manufacturing subsectors showing falls in the latest quarter. Manufacturing output is estimated to have declined by 0.6% in Quarter 2 2024."
The same trend can be seen in trade where goods exports actually fell by 2.6% in the second quarter while goods imports grew by 9.9%, widening the trade deficit in goods. Services exports grew by 3.5% but services imports rose even more, by 4.1%, reducing the surplus in services. These are not the best numbers.
The figures will no doubt be seized on and give comfort to Brexiteers but the fact is that what’s happening is precisely what you might expect. Exiting the single market was always going to be felt most acutely in trade in goods, because it is in goods that the single market is most complete and working well. In services, the SM is still a work in progress and it's far easier for services to cross borders, although that isn't without its complications.
Our services exports have been far less impacted by Brexit. They would probably have increased even more had we remained in the EU with fewer barriers.
Output per hour, the main productivity measure, rose by 0.3% in Q2 but was down in the first quarter and also down by 0.1% compared to a year earlier. This is essentially GDP per head, which many economists believe is a better measure of growth, taking into account the increase in population.
And business investment being down hardly bodes well for future growth in GDP or in GDP per head.
It is still I am sorry to say, a gloomy picture. I haven't changed my mind about Brexit standing or falling on trade and the economy, and I think sooner or later the government will have to face up to it just as Wilson and Heath had to in the 1960s and 70s.
