GDP growth still looks to have accelerated in Q2

The incoming economic data appeared to take a bit of a turn for the worse over the past month, with the headline balances of all three Markit/CIPS PMIs falling in June. What’s more, consumer confidence fell to the lowest level since the immediate aftermath in the referendum. And the fall in household saving, to the lowest rate on record, raised questions about the sustainability of even Q1’s subdued quarterly household spending growth of 0.4%. However, the Markit/CIPS all-sector PMI is still consistent with quarterly GDP growth of 0.5% in Q2 – similar to the rate implied by the CBI’s growth tracker.  And a large part of the fall in the saving rate in Q1 was due to some temporary distortions. What’s more, the biggest drag on quarterly GDP growth in Q1 was the retail sector, which contracted by 1.6%, and it looks likely to have expanded by over 1% in Q2. Accordingly, we still expect GDP growth to bounce back to close to 0.5% in Q2.