UK economic growth in Q2 widely supported

The second estimate of GDP in 2015Q2 confirmed that the British economy expanded by 0.7% q-o-q in the second quarter of 2015. All components, except inventory formation, contributed positively to economic growth. Private consumption increased by 0.7% q-o-q and investment by 0.9%. The latter was mainly driven by business investments, which increased by 2.9% q-o-q. Housing investment, on the other hand, shrunk by 3.5%. But most notable was the 3.9% q-o-q increase of exports. Since imports increased only 0.6% q-o-q, net trade contributed 1% to economic growth. However, this support is not expected to last, since British firms will likely suffer from the strong pound sterling compared to the euro, which will make British products relatively more expensive for the eurozone. 


Furthermore, lower productivity growth over the last couple of years -compared to competitors in the United States and Europe- might hurt export performance going forward. On average, nominal wages increased by 2% over the last year, while labour productivity all but stagnated in 2014 (+0.1%). A strong decrease in export orders for July, according to the CBI survey, support the view of a slowdown in export growth in 2016.