Economics Weekly by Lloyds TSB

The UK data calendar is not particularly busy this week, but what it lacks in quantity it more than makes up for in terms of the importance. The key number is the first release of Q3 GDP. While the headline figure is likely to be fairly decent, we expect it will raise more questions than it answers. Following a 1.2% Markets to focus on US housing and UK Q3 GDP data…

The UK data calendar is not particularly busy this week, but what it lacks in quantity it more than makes up for in terms of the importance. The key number is the first release of Q3 GDP. While the headline figure is likely to be fairly decent, we expect it will raise more questions than it answers. Following a 1.2% q-o-q rise in Q2, we look for GDP growth to expand by 0.5% in Q3, with risks skewed to the upside. This will partly depend on what happens to growth in the construction sector (6% of GDP) where output rose by 9.5% in Q2 and, potentially, close to 7% in Q3. The latter would still add 0.4 percentage points to quarter-on-quarter GDP. But construction aside, the rest of the economy is slowing sharply, and in services for instance (75% of GDP), we look for growth to have fallen from 0.6% in Q2 to broadly flat in Q3. If so, it would give the MPC plenty to think about when assessing the need for additional policy stimulus at November’s meeting. Other data this week include credit growth (consumer and mortgage lending) and the Nationwide house price index. Recently, Mervyn King highlighted the weakness in the monetary aggregates as one of the key downside risks to the inflation target and we expect this week’s data to further corroborate the BoE Governor’s view.

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