GDP growth slows in Q2

GDP reading: GDP growth slowed to 0.3% on a seasonally adjusted quarter on quarter basis in the second quarter, down from 0.7% in the first quarter but above market expectations and above the equivalent figure for the EU.

Broad-based slowdown: The slowdown was driven by weakening private consumption, fixed investment and exports. Household spending increased 0.1% in the second quarter, which was below the first quarter's 0.3% expansion. Meanwhile, fixed investment contracted 1.1% in Q2, marking the worst reading since Q3 2023 (Q1: +2.0% s.a. qoq). Exports of goods and services increased 1.6% on a seasonally adjusted quarterly basis in the second quarter, which was below the first quarter's 3.3% expansion. In addition, imports of goods and services growth softened to 1.4% in Q2 (Q1: +2.0% s.a. qoq). In contrast, public spending rebounded 1.2% in Q2 (Q1: -0.4% s.a. qoq).

Panelist insight: On the reading, ING’s James Smith said: “Much of the growth was generated by government consumption, which the ONS puts down to a greater number of vaccinations, something that isn’t indicative of underlying economic performance. Volatile stuff like inventories also boosted the numbers, and the key components of household consumption and business investment were actually much weaker than in the first quarter of the year. […] It’s worth not reading too much into these figures – and the Bank of England certainly isn’t doing that. Remember that the Bank has concluded that the economy barely grew at all in the first quarter, despite the superficially strong GDP growth figure. We’d also note a tendency for the growth figures to come in strong through the first half of the year, only to be weaker in the second half. This is a trend we’ve seen over the past three years, which potentially points to challenges in the way the data is being seasonally adjusted and adjusted for inflation.”

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