UK GDP Surprises Market

• UK GDP raises more questions

The UK GDP today shocked investor as it exceeded analysts’ forecast by rising 0.6% in the second quarter, reflecting a stronger UK economy before the Brexit, although the figure also includes 1 week after the Brexit.

Official numbers reported that the estimated GDP for the 3 months to June was 0.6% right before the 0.4% reported in the previous quarter.

This growth is a bit higher than market estimates that was pinned at a 0.5% rise. Industrial production which makes up around 15% of output has displayed a 2.1% increase, its strongest quarterly performance since 1999, with services which accounts for over 80% of the output also posting growth of 0.5%.

On the other hand we see a decrease in agriculture and construction which is about 6% of the output as they fell by 1% and 0.4% respectively, this marks a second consecutive quarterly fall for construction. “Fundamentals of the British economy are strong”. New Chancellor Phillip Hammond spoke as he cheerfully received the figures, further stating that, "it is clear we enter our negotiations to leave the EU from a position of economic strength".

Manufacturing output was seen to have soared by 1.86%, which is also another quarter rise that has not happened seen since 1999. The annual growth rate is at its most robust in four quarters standing at 2.2%.

Analysts are of the opinion that this show of strength by the UK Economy is least likely to be maintained.

Martin Beck of the EY ITEM club stated that the, "GDP growth in Q2 looks likely to represent one last hurrah for the economy before it enters a softer and more turbulent period. The lack of momentum as the economy entered Q3 means that the chances of a negative reading for the current quarter are relatively high."

Traders still anticipate an interest rate cut by the Bank of England to support the UK economy.

"The second quarter’s GDP figure is not as robust as it seems at face value and it won’t hold back the MPC from cutting interest rates next week," as, "growth in activity clearly lost momentum as the referendum approached" said Samuel Tombs of Pantheon.

The preliminary estimate of GDP growth drafted by the ONS will most likely go into revision as it is based on less than half of the data contained in the survey that will be used in the agency's final GDP estimate in two months’ time.

The GBPUSD is currently climbing as it has crossed above the 1.3130 level, but with the market shifting back to its previous calm state the pair might begin to settle for lower levels.

While the second quarter of this year was surrounded by the chaos erupting from the UK's decision to leave the EU, the week following the referendum might have witnessed a major slowing in economic activity but none of that will be captured by the current quarterly numbers.