Economy makes a reasonable start to Q3

After a fairly meagre 0.3% expansion in Q2, the economy looks to have made a reasonable start to Q3. Indeed, rises in both the manufacturing and services sector PMIs in July left the all-sector PMI consistent, on the basis of past form, with quarterly GDP growth of about 0.4%. Admittedly, the surveys over-stated growth in Q2. But there are reasons to think that the economy should pick up some more momentum. For a start, the official monthly output figures showed that the economy gathered pace over the course of Q2, with a solid performance in June setting a good base heading into Q3. What’s more, the weakness in the manufacturing sector in Q2 was largely driven by the volatile pharmaceuticals sector which should see a bounce back in Q3. As a result, we still think that average quarterly growth of around 0.5% or so in the second half of the year looks possible. That would deliver annual growth of around 1.8% for the year as a whole.