UK economic growth back on track

According to the preliminary estimate, UK economic growth picked up to 0.7% q-o-q in the second quarter of 2015, after a slowdown to 0.4% in the first quarter of 2015. However, the recovery seems unbalanced. The services sector, which accounts for more than three quarters of economic output, rose by 0.7% in the quarter, and therefore was the main driver of growth. In contrast, agriculture shrank by -0.7% q-o-q and construction remained flat. And although industrial output increased by 1%, this was mainly driven by an increase in oil output. Manufacturing output, a sub category of industry, fell by 0.3% q-o-q, as British factories struggled due to the strong pound - which weighs on exports. 

"We expect the pound to remain strong and thus that a slower export performance could continue to put a drag on manufacturing output and economic growth," says Rabobank.

The latter is in line with data from the CBI Industrial Trends Survey, in which manufacturing orders dropped to a two-year low in July. On the bright side, households' real spending power is improving due to strong nominal wage growth and low inflation.