United Kingdom: GDP growth edges down in the second quarter
GDP reading: GDP growth slowed to 0.6% on a seasonally adjusted quarter on quarter basis in the second quarter from 0.7% in the first quarter, matching market expectations. Slowdowns in private consumption and fixed investment drove the downtick in growth. Looking at monthly data, the economy showed no growth in April and June, and a sizeable expansion in May. On an annual basis, economic growth gained pace, accelerating to 0.9% in Q2 from the previous quarter’s 0.3% increase and marking the best result since Q3 2022.
Drivers: Private consumption growth softened to 0.2% seasonally-adjusted quarter-on-quarter in Q2 compared to a 0.4% expansion in Q1. Public spending rose 1.4% in Q2 (Q1: 0.0% s.a. qoq). Meanwhile, fixed investment growth slowed to 0.4% in Q2, following 0.9% in the prior quarter. On the external front, exports of goods and services bounced back, growing 0.8% seasonally adjusted quarter on quarter in the second quarter, which marked the best reading since Q3 2022 (Q1: -1.0% s.a. qoq). In addition, imports of goods and services rebounded, growing 7.7% in Q2 (Q1: -2.7% s.a. qoq).
GDP outlook: Our Consensus is for the economy to slow in H2 following two consecutive quarters of above-trend readings, but to easily avoid a contraction.
Panelist insight: On the latest data, ING’s James Smith said:
“The UK economy has had a much better start to 2024 than pretty much anyone had expected. […] The most obvious explanation is the improvement in real wages the UK economy is experiencing. The impact of lower natural gas prices, coupled with much more modest increases in food prices, comes at a time when nominal wage growth has stayed north of 5% over recent months. The most acute phase of the mortgage squeeze had also passed by the end of 2023, and that, combined with the impact of some personal tax cuts last November and again in March, probably helped too.”
Nomura analysts said:
“One of the explanations for the latest string of expansions in the UK is that we are still seeing catch-up growth. After all, among the world’s largest developed markets the UK remains one of the weaker performers, with GDP in Q2 this year up only 2.3% vs. pre-pandemic (Q4 2019) – only Germany has seen a weaker recovery from Covid (0.3% since Q4 2019) and it’s worth comparing to output in the US, which is almost 9.5% higher.”