Macro September 03, 2018 / 09:50 am UTC

UK Preview: due 10 Sep - GDP Update: Slightly better m/m GDP for July expected, underlying tone still subdued

By Andrew Wroblewski

Markets and the media are having to get used to the innovative monthly GDP report, this more comprehensive set of data providing a full insight into the output side of the economy than hitherto.

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The next set of data is for July, thereby offering the first glimpse into current quarter activity on the production side. We expect that GDP, growth will double in m/m terms, albeit from the paltry 0.1% June reading to 0.2%. If so, such a July outcome would be in line with the average outcome of the last 6-9 months, hardly impressive as this equates to an annualized rate of 1.4%, a notch below the economy's potential as estimated by the likes of the BoE!

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The anticipated July outcome will reflect several, conflicting swings. A further recovery in manufacturing is seen, although with downside risks given the recent weakness in the likes of car production as well as the more sobering message from the factory sector PMI! But a boost should be seen from utility/energy production as the warm weather (the second warmest July on record) will have precipitated atypically-high air conditioning usage. Oil production may correct back further too. As a result, overall industrial production is seen enjoying as second successive clear m/m rise.

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In addition, a clear correction back in construction is seen in monthly data which (due to recent revisions) no longer portray a sector in clear recession.

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Otherwise, services output is seen recovering from the flat June outcome, supported by stronger retailing activity, the latter related to both the warm weather and football fever.

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The question remains whither the weather. In the same way that unusually cold weather damaged output in the first quarter has the recent hot spell boosted the economy on a transitory basis?

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