Our views

UK GDP growth revised up

Ian Kernohan, Economist

30 September 2016

UK GDP growth in Q2 has been revised up to 0.7% quarter-on-quarter, with support from consumption and investment offset by weakness in net trade. The current account deficit remains very wide at 6% of GDP, although primary income balance has improved and should improve further post Brexit: a currency translation impact means the value of overseas income rises as sterling falls. July’s index of services was +0.4%month-on-month, and this will form a key input into the initial estimate of Q3 GDP. This series can be volatile, however it does add to growing evidence that the post-referendum impact on the UK economy was less severe than initially feared.  Meanwhile, consumer confidence has risen back to pre-referendum levels.

A speech by Minouche Shafik (Bank of England Deputy Governor) reminded us this week that, at least in her view, monetary policy should not be driven so much by what has happened in the immediate post-referendum period, but by an assessment of the likely fallout from the Brexit process in 2017/18.

“The reality of the protracted process of withdrawing from the EU means we still know very little about the nature of our future trading arrangements, and this uncertainty is weighing on prospects for business investment”.

With growing evidence of tensions at the heart of the government about hard versus soft Brexit, we think this still points to further policy easing by the BoE.

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.