UK Q2 GDP downward revision, July service sector fall, weighs on British pound

UK Q2 GDP downward revision, July service sector fall, weighs on British pound

The British pound headed lower Friday, following news the UK economy grew at the slowest annual pace in four years during the second quarter of 2017. Meanwhile, a monthly fall in services sector activity in July, exacerbated the impact of the weaker than expected data.

The Office for National Statistics (ONS), said Friday that UK Q2 DP grew 0.3% on the quarter and by 1.5% on the year. While the quarterly figure was unrevised from the previous estimate, the year-on-year number was lower than the previous estimate of 1.7%.

Adding to the disappointment, was news that the UK’s services sector – which accounts for some 80% of economic activity – declined by 0.2% on the month in July. That points to a slow start for third quarter economic activity.

One spot of better news from the final Q2 UK GDP release, was on business investment. Q2 business investment grew 0.5% from the first quarter. The ONS previously estimated no growth from the sector.

The British pound gained ground ahead of the release, before sliding back once the news was published. Meanwhile, the US dollar remains in the ascendancy on US President Trump’s tax reform plans and expectations of further Fed interest rates hikes.

Earlier Friday, Bank of England Governor Mark Carney, told the BBC Radio 4 Today show, that rates could rise soon.

“If the economy continues on the track that it's been on, and all indications are that it is, in the relatively near term we can expect that interest rates will increase," he said, in response to questions on the Bank’s plans.

Carney also said, the Monetary Policy Committee (MPC) has concerns over consumer debt and unsecured bank lending. "What we're worried about is a pocket of risk – a risk in consumer debt, credit card debt, debt for cars, personal loans," the BOE Governor said.

There is much anticipation among analysts and economists that rates could rise at that meeting However, it’s likely much will rest on the data detailing the performance of inflation and economic growth between now and then.

The next MPC rate-setting meeting is November 2. The ONS will publish the preliminary estimate of Q3 GDP on October 25, one week ahead of the BOE’s next policy setting meeting.

By Ilona Billington
Ilona is a freelance writer and editor with over 15 years experience reporting and writing about UK and European economics, real estate, financial markets and central banks.

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