UK GDP Report Offered Relief, with the UK Economy Growing by 0.2% in Q2
- The UK economy expanded by 0.2% in the second quarter.
- A pickup in production supported growth, with contributions from consumer-facing services.
- The latest figures offered relief, though economic indicators signal a deterioration in the UK economy over the third quarter.
The UK GDP report drew investor interest this morning. Downward revisions to the UK GDP numbers would fuel fears of a deep and prolonged UK economic recession.
The UK economy grew by 0.2% in the second quarter, consistent with the preliminary estimate of 0.2%. In the first quarter, the economy expanded by 0.3%. Year-over-year, the economy grew by 0.6%, up from a prelim 0.4% and 0.2% growth in the first quarter.
According to the Office for National Statistics,
- A 1.2% increase in production contributed to the pickup in economic activity.
- However, the household saving ratio jumped by 9.1% compared with a 7.1% increase in the first quarter. Social benefits, with rising salaries and wages, supported the uptick.
- As a result, household disposable incomes increased by 1.2% after remaining flat in the previous quarter.
- In the second quarter, the UK GDP is 1.8% above pre-COVID-19 pandemic levels.
- While the production sector contributed to growth, the services sector showed no growth in the second quarter.
- However, consumer-facing services grew by 0.9%.
- Household consumption increased by 0.5%, softer than 0.7% in the first quarter.
The second quarter GDP figures will likely offer relief. However, recent UK economic indicators signal a more marked deterioration in the UK economy than previously anticipated.
The negative economic outlook may leave the Bank of England in a holding pattern. Notably, Monetary Policy Committee members will likely want to see the effects of rate hikes wash through the economy before deciding on the next move.
GBP/USD Reaction to the UK GDP Report
Before the UK GDP Report, the GBP/USD fell to a low of $1.21933 before rising to a pre-stat high of 1.22283.
However, in response to the UK GDP Report, the GBP/USD slipped to a post-stat low of $1.22197 before reaching a high of $1.22364.
This morning, the GBP/USD was up 0.31% to $1.22353.
Up Next: The US Personal Income & Overlays
Later today, US inflation and personal spending will likely influence investor sentiment toward the Fed rate path.
Softer-than-forecasted Core PCE Price Index and personal spending figures may ease bets on further Fed rate hikes. However, an upward swing in personal income could signal a positive outlook on consumption.
Economists forecast the Core PCE Price Index to increase by 3.9% year-over-year in August versus 4.2% in July.
Significantly, economists predict personal spending to increase by 0.4% (July: +0.8%) and personal income to rise by 0.4% (July: +0.2%).