MNI DATA IMPACT: Bright Spots in UK GDP Despite Q2 Fall>

By Les Commons and Laurie Laird 

     LONDON (MNI) - UK GDP slipped by 0.2% in Q2, in line with earlier 

estimates, but a surge in government spending and ongoing consumer 

resilience may prevent a contraction in Q3. 

The following are the key points from UK National Accounts data 

published Monday by the Office for National Statistics.

     - Government spending increased by an upwardly-revised 1.1% in Q2, 

adding 0.2 percentage points to GDP growth. On an annual basis, 

government outlay jumped by 4.0%, the joint-highest rise since Q1 2006, 

powered by well-publicised spending on healthcare, along with education 

and general administration (including pre-Brexit planning). 

     - Consumer spending rose by an albeit downwardly-revised 0.4%, but 

still added 0.22pp to growth, the biggest single sector contribution. 

In a surprising revision, a more-than-two year stretch of household 

borrowing on the capital account was reversed, showing households to 

have been net lenders over the past nine quarters. 

     - The savings rate increased to 6.8% from 6.4%, suggesting 

consumers have the ammunition to sustain spending.  

     - The drawdown of inventories built ahead of the original Brexit 

date of late March subtracted 1.9pp from growth, less severe than the 

2.1% estimated last month. Brexit-related distortions were behind a 

15.6% plunge in gross capital formation (subtracting 3.18pp from GDP), 

reversing a 17.4% increase in Q1. Bexit positioning could continue to 

wreak havoc with economic forecasting over coming months. 

     - The service sector expanded by an unrevised 0.1% in Q2, the 

joint-smallest rise since Q2 2009. Financial and insurance activities 

declined by 0.4%, after a 1.5% decline in Q1, the fifth straight 

quarterly decline. 

     - Manufacturing was even weaker than previously estimated, 

plunging by 2.8% in Q2, the biggest fall since Q1 2009, shaving 0.28pp 

from GDP. Output of transport equipment fell by 6.1%, worse than the 

originally-reported 5.2%. With some carmakers already announcing 

temporary shutdowns to coincide with the current Brexit date of 31 

October, motor vehicle production will continue to add volatility to 

manufacturing data. 

     - The current account defict narrowed by less than forecast, to 

Stg25.2 billion from St33.1 billion. The Q1 shortfall surpassed the 

previously-reported Stg30.5 billion. The deficit declined to 4.6% of GDP 

in Q2 from 6.0% in Q1 (highest since Q3 2016). 

     - Trade exerted a less-buoyant effect on GDP than originally 

reported, adding 2.6 percentage points to growth, down from the initial 

estimate of 2.5pp. 

-London bureau: 44 (0) 203 865 3812; email: ukeditorial@marketnews.com

[TOPICS: M$B$$$,MABDS$]