Capital Economics, the City consultancy, are sticking with their forecast that the UK is heading for a mild recession later this year.
Ruth Gregory, their deputy chief UK economist, told clients that the 0.5% rise in GDP in June was mostly due to the return to the normal number of working days in June after May’s bank holiday for the King’s Coronation.
Thus, it makes the economy look stronger than it really is.
Gregory added: “Overall, the bank holiday, unusually warm weather and strikes make it hard to judge the true health of the economy. But our sense is that underlying activity is still growing, albeit at a snail’s pace. We still think that with most of the drag from higher interest rates still to come, GDP will fall in Q3 and a mild recession will begin.
“That may not prevent the Bank from raising interest rates from 5.25% now to 5.50% in September. But it may mean that rates don’t rise as far as the 5.75-6.00% envisaged by the consensus and investors.”
