U.K. Q2 GDP growth remains unchanged from initial reading, unlikely to impact BoE’s policy deliberations

As expected, the second estimate of U.K.’s GDP growth remained the same from the initial reading at 0.3 percent. Stronger-than-expected services output growth in June was countered by modest downward revisions to earlier months. Growth has expanded from the first quarter’s pace of 0.2 percent quarter-on-quarter, implying that activity might have stabilized following a weak start to the year. However, the rate of economic growth continues to be relatively sluggish. It is below most economists’ estimates of ‘trend’ growth and is down sharply on the rate seen in the second half of last year, when it averaged 0.6 percent quarter-on-quarter.

This release also has the first breakdown of expenditure growth in the quarter. This did not give a particularly positive picture, noted Lloyds Bank in a research report. Consumer spending and business investment growth were both weaker than in the first quarter. The recovery in retail spending in the second quarter was countered by weakness elsewhere, possibly a deceleration in car sales and in spending on utilities, noted Lloyds Bank.

Export growth was stronger, however, as imports grew at the same rate, net trade made little overall contribution to growth. However, this still represents an improvement on the first quarter, when net trade contributed negatively for growth. For the second straight quarter government spending rose more quickly than GDP as a whole.

The GDP growth data released on Thursday is unlikely to have a considerable effect on the Bank of England’s policy deliberations, as it is consistent with the central bank’s expectations at the time of the August Inflation Report. The majority on the MPC would possibly be reassured by signs that economic growth is stabilizing, stated Lloyds Bank. However, they would also be aware that growth is still sluggish and that declining real incomes represent a key downside risk for consumer spending, added Lloyds Bank.

At 19:00 GMT the FxWirePro's Hourly Strength Index of British Pound was neutral at -41.132, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bullish at 66.4659. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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