Q2 is likely to be another negative quarter for UK GDP, says ITEM Club

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Andrew Goodwin, senior economic advisor to the EY ITEM Club, comments on today’s GDP figures:

  • Lack of Q1 revision not a surprise at this stage – but Q1 is still likely to be pushed up later on
  • Still many oddities in the detail of the release, which undermines our confidence in the data
  • The probability of another negative quarter in Q2 is high

 “It’s not a huge surprise that the Q1 figure was unrevised. While we fully expect it to be pushed up at later date, to be more consistent with the stronger data from the labour market and other sources, history tells us that it will take some months or even years before that happens.
 
“The expenditure side of the accounts for Q1 still looks a little odd, which further dents our faith in the data. The degree of destocking and surge in government spending look particularly suspicious.
 
“The consumer sector remains somewhat of a mystery. On one hand the big downward revision to consumer spending looks inconsistent when compared to the much stronger retail figures. But on the other hand, it looks much more aligned with the income side, which demonstrates the extent that households have been squeezed by the combination of high inflation and weak earnings growth. We are optimistic that this will finally turn around over the second half of this year as inflation plunges. Although it would be foolish to rely on the consumer to be the driving force it has been in previous recoveries.
 
“The Blue Book revisions have seen a modest scaling down of the depth of the 2008/09 recession, but the revisions look smaller than in previous years and don’t fundamentally change the picture.
 
“The probability of another negative quarter in Q2 looks high. Recent monthly data for manufacturing and construction has been very weak and June’s extra Bank Holiday is likely to have exerted a significant drag. Q3 will look better, with the Olympics providing some support, but growth over the year as a whole is likely to be barely positive, if at all.”