Prospects for the UK Economy

The Office for National Statistics' (ONS) Preliminary Estimate of GDP suggests the quarterly rate of growth accelerated rapidly this year, from 0.3 per cent in the first quarter to 1.1 per cent in the second quarter (figure 1). This positive news should not be taken as a strong indicator of the prospects for the next year, as a quarter of strong growth is often matched by a subsequent weak quarter. In the first quarter of this year demand was driven by government spending and the continued moderation in the rate of inventory reduction, contributing 0.5 and 0.3 percentage point, respectively to GDP growth. Data for the second quarter of this year suggest that the expansion was spread relatively evenly, with a particularly robust contribution from the construction sector. Since the estimates are derived on an output measure we have little information by way of the sources of demand. We expect that much of the demand came from the same sources as in the first quarter. It is possible that some output was delayed from the first to the second quarter due to the bad weather, while retail sales were perhaps boosted by expenditure on electrical goods related to the World Cup in South Africa. We forecast a sharp moderation in the rate of growth in the second half of this year, as figure 1 shows.