Economic Monitor: GDP 0.9% higher than a year ago

Strong economic growth continued over Q2 2024, with GDP expanding 0.6%, following growth of 0.7% in the preceding quarter. So far, stellar performance has coincided with a return to GDP per head rising, suggesting growing consumer purchasing power. Indeed, our most recent Customer Sentiment Monitor suggests the outlook surrounding personal finances remains stable.

However, rising energy bills mean that inflation will experience some upward impetus over the coming months, with the housing and energy component starting to push up on the headline rate of inflation, particularly over Q4. Goods deflation is expected to persist; however, services inflation is likely to continue sustaining inflationary pressures into early 2025. This will limit the pace of interest rate cuts and push the bulk of any cuts into next year.

Risks remain skewed to the upside in further commodity price movements, and although prices eased on the month, they remain higher than a year ago. Natural gas prices pressed upwards, seeing heightened volatility following Ukraine’s incursion into Russia, though oil prices stepped back. This mixed picture is likely to culminate in a plateauing of business input costs, and as a result will keep cost burdens high.

• GDP was flat in June, following no growth in May. Services activity contracted marginally by 0.1%, and the largest downward contributor was wholesale and retail trade activities. The biggest upward contributor was professional, scientific and technical activities. Consumer-facing services contracted similarly, and retail trade provided the largest negative contribution. The biggest upward contributor was food and beverage service activities.
• Inflation accelerated in July and the Consumer Price Index rose to 2.2%. Of the headline rate, 0.2% emanates from food, 0.7% from restaurants and hotels and 0.5% from recreation and culture. Housing and energy costs are now pushing down by less on inflation, shaving off 0.2% from the headline figure. Fuel prices rose for both petrol and diesel, with these figures registered when petrol was £1.44 per litre and diesel £1.50. 
• The BRC-KPMG measure of retail sales rose by 0.5% in July (compared to the previous year), up from -0.2% growth in June.
• In the three months to June 2024, average regular pay (excluding bonuses) was estimated at £645 per week in nominal terms (not adjusted for inflation), higher than the estimate for a year earlier (£614 per week) and £487 per week in real terms (constant 2015 prices), higher than the estimate for a year earlier (£477 per week).