-Q2 GDP revised up to -0.5% q/q; -0.5% y/y from -0.7% q/q; -0.8% y/y

LONDON (MNI) – UK economic growth was revised higher as expected in
the second quarter but a fall in household spending and a large impact
from falling exports underlines just how fragile the economy.

While growth will have been hit by the impact of the Jubilee and
poor weather over the quarter, stripping out these effects likely still
leaves growth only around flat. The upward revision puts the data
in-line with the Bank of England’s August Inflation Report which had
pointed to slightly stronger growth than National Statistics first

GDP was revised up to show a fall of 0.5% on both the quarter and
the year, broadly in line with the median forecast. The upward
adjustment was well flagged by earlier revisions to both the
construction and industrial production data, both of which were revised
upwards from their initial estimates.

Looking at the expenditure breakdown was never going to be pretty
given the overall fall in GDP. The largest drag on growth came from net
exports which cut quarterly GDP growth by 1 percentage point, the
largest drag on growth from the external sector since Q2 1998. Fewer
working days due to the Jubilee won’t have helped here although this
probably doesn’t account for all the negative impact.

With household income being squeezed the hopes of growth stem from
the external sector, but renewed pressure on the Eurozone and the recent
appreciation in sterling suggests the boost from exports may not come
any time soon.

Household spending fell 0.4% on the quarter in Q2 and was down 0.8%
on the year. Again the Jubilee and poor weather could be to blame here.

Business investment was down 1.5% on the quarter, cutting GDP
quarterly growth by 0.1 percentage point.

The only major upward impact on GDP came from restocking with
inventories rising sharply in Q2. Excluding the alignment adjustment
these added 0.5 percentage point to GDP growth, the most since Q3 2011.
This seems likely to be due to weaker demand than expected rather than
pointing to firms expecting to see future demand increasing.

On an output basis, services growth remained unchanged to show a
fall of 0.1% on the quarter. Construction was revised up to show a fall
of 3.9% on the quarter from an initially estimated 5.2% drop.

Industrial production fell 0.9% on the quarter, in contrast to the
initially estimated 1.3% fall.

In its August Inflation Report, the Bank of England forecast growth
in Q3 to bounceback by around 1% in Q3, but revised down overall GDP
growth for the year to around flat. It had previously said it expected
special factors to hit Q2 growth by around 0.5 percentage point.

–London newsroom: 44 20 7862 7491; email: puglow@marketnews.com

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