ConDem austerity? Bah! Volcanic ash? Bah!
These were the rather strong preliminary second-quarter UK GDP figures on Friday:
RTRS-UK PRELIM Q2 GDP +1.1% QQ, HIGHEST SINCE Q 1 2006; +1.6 & YY, HIGHEST SINCE Q1 2008 (FCAST +0.6%, +1.1% YY)
RTRS-UK Q2 SERVICE SECTOR OUTPUT +0.9% QQ, HIGHEST SINCE Q1 2007, +1.7% YY; INDUSTRY +1.0%, +1.5% YY
RTRS-UK Q2 CONSTRUCTION SECTOR OUTPUT +6.6%, BIGGEST RISE SINCE 1963, REBOUNDING AFTER WEATHER-RELATED WEAKNESS IN Q1
Then again — it’s a first print, and we do know how the ONS can have a senior moment when it comes to these things.
At any rate, sterling jumped half a cent against the dollar on the news.
Update — Here’s little bit of comment from Barclays Capital:
Although today’s data are welcome, following as they do a procession of downside growth surprises over the past 18 months, there are reasons to be cautious in concluding that a vigorous recovery is in train. Consumer and business sentiment have softened recently, reflecting concerns about the effects of government cuts both here and in Continental Europe, and demand might well slow in the second half of the year. Q2 could prove to be the local peak in growth.
The stronger growth backdrop suggested by today’s release, however, could help to alleviate the MPC’s policy dilemma. The minutes of the July meeting raised the prospect of more QE, a move that would provide something of a communication challenge for the Bank given persistently high inflation outturns. The strong growth registered in Q2 suggests that further policy loosening may be unnecessary – and may help to swing the debate in favour of those arguing that the economy is sufficiently robust to withstand some modest policy tightening.
Meanwhile — a breakdown of Q2′s contributions to GDP growth, via the ONS:
Do note the government contribution — not least because not a lot of that will be there next time around. Further update — as jekelly points out in comments, Brian Green at Building Blog notes that construction activity was given a boost by government as well. ConDem austerity? Bah… humbug.
Related links:
UK Plc feels the pain of Osborne’s axe – FT Alphaville
Austerity Britain and equities – FT Alphaville
Blimey, that’s strong growth – FT Money Supply