The 1.1% jump in GDP in the second quarter is partly pay-back for below-par performance in the first quarter, reflecting the VAT rise – which may have caused firms to restrain production temporarily – and weather disruption. The average gain of 0.6%, or 2.5% at an annualised rate, over the last three quarters is a better guide to the economy's underlying path and accords with the message from business surveys and labour market data since late 2009. Non-oil growth has been slightly stronger, at 2.7% annualised.

A monthly GDP proxy derived from data on services and industrial output fell by 0.3% in April but surged 1.1% in May – see chart. The 1.1% quarterly growth estimate appears to incorporate an assumed 0.5% decline in June, for which the Office for National Statistics (ONS) currently has limited information. This indicates the possibility of an upward revision. The May level of GDP was 0.5% above the quarterly average.

Strong second-quarter growth should close off discussion of extending asset purchases at the August Monetary Policy Committee (MPC) meeting and supports Andrew Sentance's argument that the current policy stance is increasingly misaligned with a strengthening economic recovery and ongoing inflation overshoot. The "MPC-ometer" model discussed in previous posts, indeed, suggests that interest rates would now be rising, if the Committee were responding to economic and financial data in the same way as in the past.