UK: Forecasts Improve Following Strong Q2 Growth

Consensus Forecasts

The UK’s fledgling economic recovery gained momentum in Q2 as GDP growth accelerated to 0.6% (q-o-q) and 1.4% (y-o-y). Activity was driven mainly by a 0.6% (q-o-q) expansion in services output, although the recovery broadened as industrial production, construction and agriculture all made positive contributions to GDP for the first time since Q3 2010. The PMI for services stormed to 60.2 in July, its highest level for more than six years. A recent upturn in household spending also added to signs of an improving economy. Retail sales advanced 0.2% (m-o-m) in June, following a 2.1% jump in May. Moreover, this trend looks set to continue after consumer confidence surged to its highest level last month since April 2010. Elsewhere, exports of goods and services rebounded by 3.2% (m-o-m) in June. The overall trade deficit consequently narrowed more than expected to £-1.5bn, from £-2.6bn in May. Despite the increasingly upbeat outlook, GDP has yet to recoup the loss in output suffered over the past few years and remains significantly below pre-crisis levels. Inflation, which eased to 2.8% (y-o-y) in July, continues to comfortably outstrip wage growth and the government is still grappling with huge public debt. Even so, the consensus for 2013 GDP growth has been increased from last month.

The MPC left monetary policy unchanged on August 1, although new Bank of England governor Mark Carney has since looked to assert his authority by providing “forward guidance” for setting interest rates. In a move mirroring that of the US Federal Reserve, the MPC announced that until ILO unemployment rate (which currently stands at 7.8%) falls to 7%, the benchmark rate will remain at 0.5%.

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One response to “UK: Forecasts Improve Following Strong Q2 Growth

  1. UK Economy requires massive flexibility. This agenda should become National agenda of all political parties. Apart from this it is now becoming difficult to analyze the productivity puzzle. How come jobs are going up but output is going down? Solve that if you can!! ??

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