James Smith, developed markets economist at ING, notes that the UK economy shrank by 0.2% during the second quarter, the first negative GDP growth figure since the end of 2012.
Key Quotes
“Well, the inventory story was always going to dominate these latest figures – and in the end, it seems like the drag was larger than expected. Inventory levels increased dramatically during the first quarter as firms attempted to insulate themselves against possible ‘no deal’ supply disruption.”
“All of this is essentially noise, but the underlying picture doesn’t look much prettier. In particular, business investment has resumed its downward trend having fallen in every quarter of 2018 (and may only have bucked the trend in Q1 because of IFRS accounting changes).”
“Brexit uncertainty, and to a lesser extent, weaker global demand, has reduced firms’ appetite to expand. Meanwhile, contingency planning activities for a ‘no deal’ Brexit are costly and often resource-intensive, reducing scope to lift capital spending. We expect this trend to continue for the rest of the year.”
“The strong wage growth backdrop, argues that it’s probably too early to be talking about UK rate cuts. However, given the fact that business investment is set to fall further implies that the Bank of England is equally a long way off from considering resuming its tightening cycle.”
Share
