U.K. economy grows above expectations in July, economic growth likely to be stronger in Q3

The U.K. economy made a firm start to the third quarter, showed the monthly GDP report. On a sequential basis, the economy grew 0.3 percent, the strongest monthly outturn since January. The July figure surpassed consensus expectations of a 0.1 percent rise and therefore leaves the rolling three-month GDP rate at 0 percent in July from the fall of 0.2 percent recorded in the three months to June.

Significantly, this solid beginning to the third quarter signifies that even if the economy flatlines throughout both August and September, the U.K. economy would have grown around 0.3 percent to 0.4 percent in the third quarter, thus avoiding a second straight quarter of negative growth and thereby side-stepping a technical recession.

The sectoral breakdown indicates that the gains were widespread, with all three major sectors of the U.K. economy recording positive growth in July. The industrial, construction and services sectors saw a growth of 0.1 percent, 0.5 percent and 0.3 percent, respectively. Nevertheless, the biggest influence came from services, which saw its first positive monthly growth since February.

The possibility of further rises in monthly activity throughout the remainder of the quarter are underpinned by the shift in timing of car factory shutdowns. Alone, the Bank of England estimates that this might add about 0.2 percentage points to third-quarter GDP, while it is still likely that some precautionary stock-building might also add impetus to economic activity in the third quarter.

“Overall, today’s data suggest that the pace of economic growth in Q3 is likely to be stronger than that implied by surveys of business activity, including the Lloyds Business Barometer and the PMIs. After the August survey readings, IHS Markit suggested that the PMIs were consistent with a contraction in Q3 GDP of around 0.1 percent”, said Lloyds Bank.