Second quarter GDP held up better than expected. A provisional 0.2 percent quarterly rise was a couple of ticks above the market consensus and followed an unrevised 0.1 percent gain at the start of the year. Annual growth improved from 0.2 percent to 0.4 percent but total output was still 0.2 percent below its pre-Covid mark in the fourth quarter of 2019.

Household spending was up a solid 0.7 percent on the quarter after zero growth in the previous period and although gross fixed capital formation was only flat, within this business investment was up fully 3.4 percent. Moreover, this followed a 3.3 percent spurt in the first quarter. In the government sector, investment fell 6.7 percent but consumption (3.1 percent) also provided a tidy boost. Business inventories (excluding alignment and balancing) subtracted 0.4 percentage points.

Consequently, growth would have been a good deal stronger but for net foreign trade which subtracted some 1.1 percentage points as a 2.5 percent drop in exports was compounded by a 1.0 percent increase in imports.

The latest data confirm that the UK avoided recession in the first half of the year. In addition, the buoyancy of both household spending on services and business investment significantly reduces the downside over the second half. Even so, with inflation still so high and interest rates heading up, growth through year-end is likely to be sluggish at best. That said, at 39 and 46 respectively, the UK's ECDI and ECDI-P show overall economic activity running well ahead of market expectations.

Second-quarter GDP is expected to match the its first quarter level, leaving annual growth steady at a 0.2 percent.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. Since 2018, the first, or provisional, estimate includes the GDP expenditure components as well as data on the main output sectors. These results are updated in the second, and final, report.

GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Stock market Investors like to see healthy economic growth because robust business activity translates to higher corporate profits. The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. These data are readily comparable to other industrialized countries. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.

Each financial market reacts differently to GDP data because of their focus. For example, equity market participants cheer healthy economic growth because it improves the corporate profit outlook while weak growth generally means anemic earnings. Equities generally drop on disappointing growth and climb on good growth prospects.

Bond or fixed income markets are contrarians. They prefer weak growth so that there is less of a chance of higher central bank interest rates and inflation. When GDP growth is poor or negative it indicates anemic or negative economic activity. Bond prices will rise and interest rates will fall. When growth is positive and good, interest rates will be higher and bond prices lower.

Currency traders prefer healthy growth and higher interest rates. Both lead to increased demand for a local currency. However, inflationary pressures put pressure on a currency regardless of growth. For example, if the UK reports that the consumer price index has risen more than the Bank of England's 2 percent inflation target, demand for sterling could decline. Similarly, when the Bank of England lowers interest rates, the pound sterling weakens. (Currency traders also watch the interest rate spread between countries.)