Week Ahead 24 July

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All eyes on Q2 GDP

On Wednesday, the ONS releases the first estimate of GDP growth for the second quarter of 2017. UK economic activity lost momentum in the opening quarter of the year, after a strong performance in the second half of 2016. GDP growth came in at 0.2% in the three months between January and March, down from 0.7% in the last quarter of 2016. Consumer spending was very much to blame for the slowdown, reflecting the impact on real incomes from the surge in inflation and the subdued pace in wage growth.

Survey evidence and other short-term indicators sent mixed signals about economic activity in the second quarter. Manufacturing output disappointed in May, down 1.1% over the three months between February and May, suggesting the sector will likely be a drag on GDP growth this quarter. Output in the construction sector also fell by 1.2% in the three months to the end of May. On the other hand, growth in the services industry showed no signs of picking up either. Real incomes remained under pressure in the previous three months as inflation continued its ascendance while earnings' growth remained sluggish. This is in line with recent PMI readings, where we have seen indices for both services and manufacturing sliding back from earlier peaks.

What do this sums up to? GDP growth in the second quarter is projected to be in the range of 0.3-0.4%. While this would be an acceleration on last quarter's lacklustre growth, it remains modest to average quarterly growth reported for the UK economy in recent years.

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