Q3 growth slowdown won’t be too sharp

Both survey and hard data published this month suggest that GDP will grow moderately in Q3, avoiding too sharp of a slowdown from Q2’s upwardly-revised quarterly rate of 0.7%. Indeed, the 0.4% monthly expansion of the services sector in July’s official data, on top of the upward revision to June’s result, sets a solid base for growth in Q3. And the unexpected further rise the all-sector PMI in September means that its average for Q3 is consistent with quarterly growth of 0.2%. Admittedly, this means that economic data has probably been a bit stronger than the MPC expected at the time that it produced the August Inflation Report, perhaps reducing the chance of a further rate cut before the end of the year. However, Q3 GDP growth is unlikely to be much above the Committee’s forecast. Accordingly, we still expect a cut in Bank Rate to 0.10% in November.