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GDP growth stronger than anticipated in Q2 2016

GDP growth in Q2 2016 (the three months to June 2016) was higher than anticipated at 0.6%, and above growth seen in Q1 2016. Early estimates show:

  • Strong growth in the manufacturing sector, of 1.8%
  • Growth in the services sector, of 0.5%
  • A contraction in the construction sector of -0.4%, following a contraction of -0.3% in Q1 2016

Labour market continues to perform well

Data released in July show that in March to May 2016, the unemployment rate fell to 4.9%, its lowest level since the three months to October 2005. Employment continued to rise, reaching 31.7 million. The employment rate for 16-64 year olds was 74.4%, a record high.

GDP forecasts for 2016 and 2017

The Treasury’s survey of independent forecasts of GDP growth in 2016 was slightly reduced in July compared with June (from 1.8% to 1.6%). However, forecast growth for 2017 was markedly lower. In June the average forecast of GDP growth in 2017 was 2.1%. In July it was 0.8%.

Economic sentiment in July 2016

July saw the publication of the composite UK Purchasing Manager’s Index (a survey of economic confidence in manufacturing and services businesses). In July 2016, this index contracted by more than at any time since 2009.

Bank of England analysis

The Bank of England’s Agents’ survey of business conditions published in July, found that although uncertainty had risen since the referendum, businesses were still adopting a “business as usual” approach, and the majority did not expect to reduce investment or hiring plans in the near-term.

However, the deterioration of wider economic forecasts and sentiment indicators has persuaded many commentators that the Bank’s Monetary Policy Committee will cut interest rates during August, possibly at their meeting on Thursday 4th.

New Chancellor’s initial comments

Phillip Hammond was appointed Chancellor of the Exchequer on the 13th July. He has stated that the Government might “reset” its fiscal policy if economic data worsens over the summer. This follows George Osborne’s announcement shortly after the referendum that the target of a budget surplus by 2020 had been scrapped.

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