Eurozone steals a march on Britain after Brexit vote, with faster GDP growth and falling unemployment rates.
The eurozone economy has grown twice as fast as the UK in recent months, according to official figures that underscore the divergence between Britain and its neighbouring currency bloc after the Brexit vote.
GDP in the 19 countries that use the euro expanded 0.6% in the second quarter of 2017, building on growth of 0.5% in the first quarter, according the EU statistics body Eurostat.
In the UK by contrast, the latest official figures released last week showed the economy grew by just 0.3% in the second quarter of 2017 following 0.2% expansion in the first three months of the year. The economy had shown resilience in the immediate aftermath of last year’s EU referendum, confounding forecasts of a downturn. But growth has slowed markedly since the turn of the year as a weaker pound has raised the cost of imports, pushed up inflation and squeezed consumers.
In the eurozone, growth has quickened and unemployment has fallen against the backdrop of ultra-low interest rates and other measures by the European Central Bank (ECB) to boost activity.
Eurostat said second-quarter GDP was up 2.1% compared with a year earlier, the fastest growth since 2011 and in line with forecasts by economists in a Reuters poll.
Bert Colijn, a senior eurozone economist at the bank ING, said the bloc had enjoyed a “surprisingly strong” first half to 2017.
Eurostat did not provide any detail about what had driven growth in Tuesday’s early estimate of GDP but Colijn said domestic demand continued to be an important factor.
He added: “Some countries have already released their first estimates of second-quarter GDP growth, showing that the expansion is broad-based within the eurozone. France, Spain, Austria and Belgium all recorded solid growth rates.”
“All in all, the eurozone economy has rounded out the first half of the year in a very healthy state and seems to be set up nicely for continued firm growth for the rest of 2017.”
While UK growth was slower over the first half of this year, some business surveys have suggested it could quicken in the second half. The latest check on manufacturing on Tuesday pointed to a rise in activity in July, helped by strong growth in export orders.
The headline index on the IHS Markit/CIPS UK manufacturing PMI (pdf) rose to 55.1 in July, from 54.2 in June. The reading was well above the 50-mark that separates expansion from contraction and beat economists’ forecasts for 54.4.
Job creation quickened, production picked up and order books improved, according to the poll of purchasing managers at more than 600 industrial companies.
Rob Dobson, an economist at the survey’s compilers, IHS Markit, said it showed UK manufacturing – which makes up a tenth of the UK economy – had started the third quarter on a solid footing.
He highlighted particularly solid growth in UK exports, which have been made more competitive by the pound’s sharp drop after the Brexit vote and have benefitted from a strengthening global economy.
“Although the exchange rate remains a key driver of export growth, manufacturers also benefitted from stronger economic growth in key markets in the euro area, North America and Asia-Pacific regions,” Dobson said. “Continued expansion is also still filtering through to the labour market, with the latest round of manufacturing job creation among the best seen over the past three years.”
The report will provide more fuel to the debate among policymakers at the Bank of England over when to raise interest rates from their record low of 0.25%. The monetary policy committee meets this week to make its latest decision on borrowing costs and to release new forecasts for the economy.
The committee was divided at its last meeting, with three members wanting to increase borrowing costs to curb inflation while the other five preferred to keep them on hold to shore up growth and employment.
Policymakers would be reassured by signs in the PMI report that manufacturers’ cost pressures eased in July, said Howard Archer, chief economic adviser to forecasting body, the EY ITEM Club. Input prices rose at the slowest pace in more than a year, according to the survey.
“The survey pointed to a further marked easing of price pressures in the manufacturing sector in July, which fuels hope that UK inflation is close to peaking and will go down well at the Bank of England,” said Archer.