British economy's last 'hurrah' awaited before Brexit growth shock

A Bank of England report last week indicated there hadn't been an immediate hit to the economy. Photo / Luke MacGregor

The British economy appears to have had a last hurrah before Brexit.

Growth accelerated to 0.5 per cent in the second quarter, according to a Bloomberg survey, a pickup that's likely to be reversed after the country voted to quit the European Union last month.

Economists see the three months through June marking the end of more than three years of unbroken expansion, and have penciled in contractions of 0.1 per cent this quarter and next.

"The economy had done quite well in the run-up to the referendum, but that can turn pretty quickly," said Samuel Tombs, an economist at Pantheon Macroeconomics. "We've already seen consumer confidence fall very sharply and all of the survey data has just collapsed over the last month."

While the strong second quarter gave the UK momentum heading into the shock referendum result, surveys since then have indicated a dramatic weakening in confidence among consumers and businesses. That could stymie investment and hiring and even undermine household spending, a key driver of the economy in recent years.

The Office for National Statistics will publish the first estimate of GDP on Wednesday in London, and it will be based on about 44 per cent of the data. The figure will probably be boosted by a strong April, when industrial production, construction and services all posted solid gains.

"Most people would have expected, in the absence of a Leave vote, for growth to continue to run at a slightly above-trend pace," said Allan Monks, an economist at JP Morgan in London.

"The June data will give some indication of whether momentum was fading in the run-up to the referendum."

Since the Brexit vote, manufacturing confidence has plunged and Markit Economics said its business activity surveys are at the weakest since the last recession seven years ago.

While a Bank of England report last week indicated there hadn't been an immediate hit to the economy, it noted that uncertainty had risen "markedly."

We've already seen consumer confidence fall very sharply and all of the survey data has just collapsed over the last month.

That suggests potential for a real economic fallout down the line, posing a challenge for policy makers trying to assess whether more stimulus is needed.

While Governor Mark Carney has said that the bank is likely to ease policy over the summer, Kristin Forbes has said she needs more concrete evidence before acting. Martin Weale, who had shared Forbes' view, this week shifted his stance toward stimulus after the weak Markit survey.

The nine-member Monetary Policy Committee announces its next decision on August 4 after opting for no change in July.

Investors are pricing in an 97 per cent probability that officials will lower the benchmark rate. It's been at a record-low 0.5 per cent for more than seven years.