| Consensus | Actual | Previous | |
|---|---|---|---|
| Quarter over Quarter | 0.6% | 0.6% | 0.7% |
| Year over Year | 1.0% | 0.9% | 0.3% |
Highlights
In terms of the headline data, the economy had a good second quarter. GDP expanded 0.6 percent versus the previous period, in line with the market consensus and only just short of an unrevised 0.7 percent gain at the start of the year. Annual growth climbed from 0.3 percent to 0.9 percent, its strongest reading since the third quarter of 2022.
However, household consumption posted a modest 0.2 percent quarterly gain, only half the rate recorded in the first quarter and growth of gross fixed capital formation eased from 0.9 percent to 0.4 percent. Moreover, within the latter, business investment dipped 0.1 percent, its first contraction since the first quarter of last year. Consequently, the overall expansion would have been a good deal less robust but for government spending which jumped 1.4 percent. Business inventories had a broadly neutral effect.
Net foreign trade had a negative impact as a 0.8 percent rise in exports was easily eclipsed by a 7.7 percent jump in imports, the latter's first advance since the fourth quarter of 2022. As a result, net exports subtracted fully 2.2 percentage points.
In sum, despite respectable headline growth, final domestic demand was much less impressive with both private consumption and business investment falling well short of their first quarter performances. Still, the economy in the first half of the year proved surprisingly resilient to high interest rates and the pressure on the BoE to reduce Bank Rate is not as great as might have been expected earlier. That said, with inflation on the way down another cut at next month's MPC meeting cannot be ruled out. Today's data put the UK RPI at minus 15 and the RPI-P at minus 4. In general, economic activity is falling slightly short of market forecasts.
However, household consumption posted a modest 0.2 percent quarterly gain, only half the rate recorded in the first quarter and growth of gross fixed capital formation eased from 0.9 percent to 0.4 percent. Moreover, within the latter, business investment dipped 0.1 percent, its first contraction since the first quarter of last year. Consequently, the overall expansion would have been a good deal less robust but for government spending which jumped 1.4 percent. Business inventories had a broadly neutral effect.
Net foreign trade had a negative impact as a 0.8 percent rise in exports was easily eclipsed by a 7.7 percent jump in imports, the latter's first advance since the fourth quarter of 2022. As a result, net exports subtracted fully 2.2 percentage points.
In sum, despite respectable headline growth, final domestic demand was much less impressive with both private consumption and business investment falling well short of their first quarter performances. Still, the economy in the first half of the year proved surprisingly resilient to high interest rates and the pressure on the BoE to reduce Bank Rate is not as great as might have been expected earlier. That said, with inflation on the way down another cut at next month's MPC meeting cannot be ruled out. Today's data put the UK RPI at minus 15 and the RPI-P at minus 4. In general, economic activity is falling slightly short of market forecasts.
Market Consensus Before Announcement
Total output is seen rising a quarterly 0.6 percent versus 0.7 percent in the first quarter. Annual growth is seen at 1.0 percent, up from 0.3 percent.
Definition
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.
Description
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.)
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.)
