This month’s headlines:
- UK GDP growth picks-up in Q2, but the latest QES indicates weaker growth.
- Bank of England cuts UK interest rates to a new record low of 0.25% and expands QE.
- Eurozone GDP growth weakens in Q2, while consumer spending boosts US GDP growth.
The official estimate for Q2 2016 GDP growth highlighted that UK economy grew by 0.6% up from a growth of 0.4% in Q1. Industrial production rose by 2.1%, the fastest rate of growth since Q3 1999. However this is in contrast to the latest QES survey which revealed a weaker picture for the sector.
The Bank of England’s Monetary Policy Committee (MPC) cut the UK interest rate to new record low of 0.25%. This is the first time since March 2009 that interest rates have moved and the MPC also decided to expand the Quantitative Easing (QE) programme. This reflects their view that the UK’s economic outlook has substantially weakened.
Growth in the Eurozone was cut in half in Q2 with a growth rate of 0.3%. In Q1 the growth rate was 0.6%. Whilst in the United States, consumer spending boosted growth. Despite this growth the US economy remain weak and it is unlikely that an immediate rise in US interest rates will be seen.
Bottom Line:
Whilst the decision to cut UK interest rates will do little to support long-term growth, the expansion of the QE programme will play a more substantial role. However increasing economic uncertainty means that it is even more critical to address the long-standing issues facing the UK, including the chronic underinvestment in Britain’s infrastructure such as transport and broadband.
For full details of this month’s economic review click here.
