JP Morgan bumped up their growth forecasts for the UK economy in the third quarter of this year following last week’s GDP figures.
The investment bank now expects the economy to grow 0.4 per cent between July and September, up from a previous estimate of 0.3 per cent. This equates to an annualised growth rate of 1.5 per cent.
JP Morgan’s upgrade comes on the back of a busy week of data for the UK economy. According to figures released last Thursday, GDP grew 0.6 per cent in the second quarter, continuing the UK’s surprisingly strong start to 2024.
The bank pointed out that underlying growth is likely softer than the headline figures suggest given the relative weakness in consumer spending, which only increased 0.2 per cent in the quarter.
However, these figures are often subject to revision and JP Morgan still expects relatively strong growth in the months ahead.
The bank pointed to Friday’s retail sales figures, covering July, which showed that sales volumes rose 0.5 per cent month-on-month. “This sets 3Q on a solid footing and suggests the awakening of the consumer in 1H24 is continuing into 3Q,” Allan Monks, an economist at the bank said.
At the start of the year most economists thought the UK would grow by around 0.4 per cent, but now consensus is closer to 1.0 per cent.
Growth has been supported by an improving outlook for consumers, with wage growth remaining relatively high even as inflation has fallen back to target.
JP Morgan noted that the labour market remains resilient, which should help to sustain stronger consumer spending in the months ahead. “We continue to see positive fundamentals due to growth in real incomes and rising household confidence,” he said.
The bank argued that stronger growth and a slight pick up in inflation will likely slow the pace of interest rate cuts. “The Bank of England has good reason to remain cautious on rates,” Monks said.
The Bank cut rates for the first time since the pandemic earlier this month, although Governor Andrew Bailey stressed that rate-setters would be cautious in the months ahead.