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United Kingdom GDP Q2 2023

United Kingdom: GDP records fastest growth since Q1 2022 in the second quarter

GDP growth accelerated to 0.2% on a seasonally adjusted quarter-on-quarter basis in the second quarter from 0.1% in the first quarter, beating market expectations. Q2’s reading marked the fastest expansion since Q1 2022. On an annual basis, economic growth sped up to 0.4% in Q2, following the previous quarter’s 0.2% growth. Looking at the monthly picture, activity surged in June, more than offsetting May’s contraction. That said, the UK remains the only major economy yet to have regained its pre-Covid level of output.

Private consumption growth hit an over one-year high of 0.6% in the second quarter (Q1: 0.0% s.a. qoq). Improved consumer sentiment, lower price pressures, good weather in June and the solid labor market likely supported spending. Government consumption rebounded, growing 3.1% in Q2 (Q1: -1.8% s.a. qoq). Meanwhile, fixed investment flatlined in Q2, marking the worst result since Q2 2022 (Q1: +2.4% s.a. qoq); stronger business investment was offset by a fall in government investment.

Exports of goods and services fell at a slower pace of 2.5% in Q2 (Q1: -6.9% s.a. qoq). In addition, imports of goods and services bounced back, growing 1.0% in Q2 (Q1: -3.8% s.a. qoq).

In Q3, the Consensus is for the economy to eke out another mild expansion, though there is discrepancy among our panelists over the rate of growth.

On the outlook, Berenberg analysts said:

“The elevated risk environment suggests near-term caution. Global trade weakness linked to China troubles and sluggish momentum in the US and across Europe will hold back export-oriented sectors. At home, the housing-market correction needs to fully run its course before we can say for sure that the risk of a technical recession in H2 is off the table. After the small gain in Q2, we expect growth to flatline in Q3.”

In contrast, ING’s James Smith is more optimistic:

“June’s large rebound means the starting level for the third quarter is pretty favourable. In other words, even if we get only very modest growth over the summer months, third quarter GDP is still likely to come in at roughly 0.4%. The gradual resolution of worker strikes also adds a bit of upside potential for some public industries, perhaps including transport.”

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