The pound was unmoved as Britain’s second quarter GDP estimate was in line with market expectations for growth of 0.3% from the first quarter. Sterling traded much in the middle of the day’s range after the release, clinging to the $1.30 handle.


This was a slight improvement on the 0.2% seen in Q1 and a sign that the economy continues to tick over, although it’s not exactly firing on all cylinders. Growth in the first half of the year has decelerated markedly from the performance seen through the final three quarters of 2016. H1 growth was half that seen in H2 2016 – a sign that Brexit is biting perhaps.

Retail and services led the way. The easing of inflation we’ve seen – down from 2.9% to 2.6% last month – suggests consumer spending is able to remain a little firmer. Productivity remains the big problem with GDP per head up a measly 0.1% qoq.

A few noteworthy points from the ONS. Hotels and restaurants among the biggest contributors to the growth as the weak pound boosts tourism. On the other side, on the day that we learn diesel and petrol cars are to be banned from 2040, it was falling motor manufacturing that sank production output. Construction output reversed course, falling about 1% after rising that much in Q1.

On the other side of the cable trade we are looking ahead to the Federal Reserve meeting later today. This is a total non-event. No presser with Janet Yellen means no policy change. The Fed usually likes to have that chance to explain its position when it moves on rates. Also there hasn’t been the kind of jawboning from policymakers that usually precedes a policy shift.

We could get some tweaks to how the FOMC views the recent lacklustre inflation data. This presents the only real chance of a surprise with a small chance that policymakers indicate they are losing patience and don’t see the weak inflation as transitory but more sustained. There might also be a hint about balance sheet reduction but again any firm announcement on roll-offs will wait until after Jackson Hole and the September meeting.

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