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This data is good news for the economy, however I doubt it will be so positive next time around when more of the impact of the rate rises we've had recently are taken into account. Unfortunately, though, this positive news isn’t such good news for borrowers and I suspect the twitchy fingers of the Monetary Policy Committee are already hovering over the increase button. Let’s just hope the inflation data next week is better than expected in order to calm those twitchy fingers.
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Positive news for those hoping there's life on Mars, as this data shows that even in poisoned soil something can grow, albeit only slightly. Despite the Government and Bank of England’s best efforts to destroy the UK economy, we are still above the brink of recession. However, this data for the second quarter and June came before the impact of yet more needless rate rises, so is not a true reflection of the economy today.
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The UK economy has finally managed to pull itself out of its stagflation rut, as its GDP finally grew by more than 0.1% in Q2 and 0.5% in June, showing welcome signs of life. That said, Britons should be wary as the better economic outlook could push the Bank of England to take a more hawkish approach. Good news could be bad news for borrowers. This could see mortgage rates reverse course, having seen some relief over the past weeks. Also, any potential GDP growth will be heavily challenged by strong headwinds from sky-high interest rates and high taxes. Nonetheless, investors and lenders alike shouldn't pay too much attention to GDP given its reputation as a lagging indicator. Instead, next week's unemployment and wage data will prove to be more decisive in where interest and mortgage rates head next. Friday's figures give reason for cheer, but it will be next week's data that determines whether the party continues or sees everyone wake up with a hangover.
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Comparing the UK to other major economies is akin to expecting her to run a marathon and ignoring the fact she’s recently had a heart attack. Brexit was a heart-stopper for UK plc and it will take some time until she reacts to the defib. Combine that with the shambolic government and lack of direction on growth and investment and you create an environment no business would want to settle in.
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The GDP figures are encouraging and surpass expectations. Surprisingly, we hope the Bank of England doesn't consider the growth too rapid. While it's challenging to get overly enthusiastic about growth numbers beginning with a zero, it underscores the resilience of the UK economy. Hopefully, the inflation data on the 16th will also exceed expectations and the Bank of England balance the good with the bad when considering rates.
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This improvement in the economy may be the last hurrah before the mortgage rate increases already scheduled over the next 18 months take effect, there is an inherent time lag between the impact of recent base rate increases, expiring cheap mortgage deals, and the economy performance this last quarter. It could be a catalyst for higher mortgage rates, indeed, it will be a huge consideration at the next MPC meeting, if not the SWAP markets beforehand.
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Another quarter of negligible growth is nothing to celebrate. The economy is laden with debt, the tax burden is at a 50 year high and interest rates are still rising. Where is the pro-growth agenda?
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The UK economy is proving surprisingly resilient in the face of huge economic headwinds. The 0.5% GDP growth in June is particularly striking, though the fine weather likely had a significant bearing, helping to boost hospitality and retail sales. The acid test will be the second half of the year, as the recent steep interest rate rises really start to bite.
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If you open the door and listen closely, you can hear Jeremy Hunt sighing in relief at these latest economic figures. Does this mean the UK is back and booming? No, but it's a good start.