Stronger than expected GDP figures - but ITEM Club warns that subsequent quarters will be weaker and additional QE is on the cards

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Nida Ali, economic advisor to the EY ITEM Club, comments on today’s GDP figures:

  • Stronger than expected increase in GDP provides much needed respite from the doom and gloom
  • Apart from the construction figures, the sectoral breakdown is broadly in line with expectations
  • But the economy continues to face significant challenges and we still expect more QE to be authorised in the coming months

“This is an even stronger increase in GDP than we were expecting, providing much needed respite from the doom and gloom. Assuming that the bounceback from the extra Bank holiday in June accounts for 0.5% of growth and the boost from the Olympics for about 0.2%, Q3 still saw underlying growth of around 0.3% which is really encouraging, particularly in the difficult external environment. These figures are also more aligned with the labour market data and go some way in resolving the productivity puzzle.

“Looking at the sectoral breakdown we are once again very sceptical about the construction figures which, having fallen by about 11% in the last three quarters, look far too weak. But growth in production and services was broadly in line with expectations.

“Despite today's encouraging figures, the economy continues to face significant challenges, both at home and abroad, so we expect growth in subsequent quarters to remain weak. As such, we still expect the Bank of England to expand QE, once the current tranche of asset purchases ends next month.”