EY ITEM Club comments on today's GDP figures
Nida Ali, economic advisor to the EY ITEM Club, comments on today's GDP figures
- Though discouraging, the downward revision to Q2 GDP doesn't alter the broader picture of broadly flat growth in Q2
- Steep fall in consumer spending was unexpected
- These results will heighten tensions in the MPC meeting to be held on Thursday and bring us ever closer to the prospect of more QE in the near future
"Although the downward revision to Q2 GDP is certainly discouraging, it doesn’t change the broader picture that growth in Q2 was broadly flat. More interestingly, the release reveals that the peak-to-trough decline in GDP during the recession was even greater than previously thought, but the recovery started one quarter earlier. Furthermore, the oddities in the construction data (of very strong growth in 2010) still remain unresolved.
"The expenditure breakdown reveals some unwelcome signs. Most notable was the steep fall in consumer spending. Although consumers are currently facing numerous headwinds due to declining real wages and high unemployment, a contraction of 0.8% was much more than expected.
"Due to the one-off factors affecting GDP in Q2, growth in Q3 is likely to accelerate. However, the recent turmoil in financial markets has significantly darkened the outlook, and we expect the economy to slow further in the second half of the year.
"These results will heighten tensions in the MPC meeting scheduled for tomorrow. Although more QE is unlikely to be announced as early as this month, these results heighten the possibility of it being implemented sometime in the near future."