"Within the details, consumer expenditure was the largest contributor to the quarterly figures (+1.7 percentage points) as households took advantage of the continued improvement in real disposable income. Consumption of goods, particularly motor vehicles, was stronger than has been in recent quarters – a sign that households are gaining the confidence to make large ticket purchases. Investment also made a positive contribution (+0.9 ppt) after a flat first quarter. We look for corporates to increase capex as confidence in the wider economic recovery solidifies. Meanwhile, net trade made a small negative contribution (-0.6 ppt) as imports outpaced exports over the quarter. Government spending made a negligible impact (+0.3 ppt), but the positive contribution from changes in inventories was very large (+1.7 ppt). Normally, the large contribution from inventories would be a concern as it would signal demand not keeping up with supply, however, the rise in Q2 follows contractions in the previous two quarters, and so is to be expected.Keith Wade, chief economist at Schroders, comments on yesterday's US GDP figures, which far outstripped expectations with growth of 4%.
Raise Rates And The Spending Gets It!
Memo to Mark Carney, governor of the Bank of England, and the other members of the UK's Monetary Policy Committee.
My wife and I currently go out for dinner once a week, spending c£45 at ASK Italian on a Saturday evening. Raise interest rates and that spending will be the first casualty as the monetary belt tightens, and it won't be the last; I don't think that you understand for a second how tight things are for 'ordinary' people. It's not a question of putting the butler, the cook and the footmen on short time; it's a question of living rather than existing.
Push rates up and we'll see a second downwave, I predict, as people begin to take serious cost-cutting measures in addition to the ones already made over the past seven years. We have our contingency plans in place; I wonder how many others are also mentally packing the lifeboats.
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