What's been driving GDP growth this year?

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GDP growth was confirmed at 0.6% (as expected) in the three months to June. This month’s more detailed release provides a bit more insight into what was underpinning that growth. Still, a lot of water has passed under the bridge since then…..

 

In what continues to feel like a pre-referendum mopping up exercise, the latest GDP release shows that ONS’s estimate of GDP growth in the second quarter of this year was unrevised at 0.6%. This confirms that UK growth picked up from the start of the year.

  • Household spending was the main driver

  • Businesses upped their investment

  • Net trade disappoints …. again

 

GDP16q2Aug  

 

A deeper dive into the data reveals a slight shift in the contributions to growth over the quarter, but the main driver remained household spending. Spending growth picked up pace in the second quarter, increasing by 0.9% - the fastest pace since 2014q3. That alone would have kept GDP growth ticking over at 0.6%.

However, in a change from the past two quarters, business investment growth made a welcome return after falling by 2.2% in 2015q4 and by 0.6% in 2016q1. Other components of gross fixed capital formation also pitched into growth over the quarter. Whether businesses’ capital expenditure plans remain resilient following the referendum, is looking pretty uncertain, however.

In contrast modest export growth versus massive import growth once again left net trade dragging on GDP growth in the three months to June. A familiar story (as illustrated) – but one that could turn around in the latter part of this year, if exporters may hay with the fall in Sterling.

We still reckon that this pace of GDP growth will be the high point this year. Slower growth and a different composition of growth in the second half of the year looks like the most likely scenario.

 

 

Author

Chief Economist

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