What does the first estimates of 2015 Q2 UK GDP tell us about UK economy?

The first estimate of UK GDP for the second quarter of 2015 confirmed our expectations that the economy bounced back strongly in the spring, growing by 0.7% q-o-q, up from 0.4% in 2015q1. The latest release also confirmed that GDP-per-head is finally back to pre-recession levels.

Disappointingly, the details reveal that the recovery is becoming increasingly unbalanced with the economy even more reliant on domestic-driven growth, with the export-reliant industries continuing to struggle against the backdrop of a strengthening of sterling coupled with sluggish demand from the EU; a key export market for the UK. Given these conditions, the services sector accelerated strongly in q1, growing by 0.7% q-o-q, while output in the export-focused manufacturing industry fell by 0.3% quarter-on-quarter; the first decline in just over 2 years.

Within the services sector, the strongest performance came from distribution, hotels and restaurants, which enjoyed a rise of 0.9% in output. The key business services and finance sector, which had stalled in 2015q1, rebounded by 0.8%. Public services rose by only 0.2% and, with further fiscal budget cuts in the pipeline, this sector is set to remain the most challenged on the domestic front. 

While details on the demand side of the economy are not yet available, it is clear that the economic expansion continues to be primarily driven by consumer spending. Prospects for consumer incomes and spending for the rest of this year remain rosy – with inflation set to remain subdued, wage growth accelerating and underlying labour market conditions still robust. In contrast, net trade will remain a major drag for the UK as the combination of lacklustre overseas demand and a strong currency continue to undermine exporters. 

For more information, why not look into a variety of Economic Forecasts, including a UK GDP Forecast from Experian…