UK Q2 GDP: consensus may underestimate services strength
Simon Ward
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UK GDP is still expected here to have risen by 0.8-0.9% in the second quarter versus an upwardly-revised consensus forecast of 0.6%.
The hard data in hand are April / May output for the industrial and construction sectors, accounting for 14% and 6% of GDP respectively, and an April reading for services, with a 79% weighting. If it is assumed that output in the three sectors is unchanged at its latest published level, and there are no revisions to earlier data, GDP would rise by 0.5%. The consensus estimate, in other words, assumes little further growth later in the second quarter.
The expectation here, however, is that services output, in particular, will have registered further solid expansion. Supportive evidence includes:
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Retail sales volume in May / June was up 2.2% from April. Retail trade has a 7% weighting in the index of services, implying a 0.15% boost to output relative to April.
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Turnover in private non-financial services excluding retail / wholesale trade surged by 9.3% in value terms in May from a year earlier. This series is ignored by the consensus but is an important input to services output; the strength of the year-on-year gain suggests a significant positive contribution to the output change between April and May.
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Business surveys of services have been uniformly optimistic; the purchasing managers’ activity index, for example, reached a 27-month high in June.
A rise of 0.5% in services output in May / June compared with April is realistic on the basis of this evidence and would be consistent with a quarterly GDP rise of 0.8% (i.e. maintaining the other assumptions above).
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