Q2 real GDP growth came in at +0.4% q/q, in line with our expectations, after +0.2% in Q1. Consumer spending accelerated slightly to +0.3% (from +0.2% in Q1) and business investment rebounded to +0.5% (-0.4% in Q1). Public spending grew at the same pace as in the previous two quarters (+0.4%) while inventories rebounded (+0.4pp to Q2 GDP growth) after four consecutive quarters of contraction. Net exports subtracted -0.8pp from GDP growth. We expect economic growth at +0.4% q/q on average over the next two quarters which will keep our full-year forecast of +1.4% in 2018 on track, followed by a slight slowdown to +1.3% in 2019. Brexit negotiations are expected to remain tough. However, we expect a last-minute agreement (70% probability) by the end of January 2019 which targets the Withdrawal Bill (currently 80% agreed) and the political declaration on the Future Relationship – which will pave the way for the transition period until the end of 2020.
