The Tuesday note - 30 May 2017

• The FTSE 100 closed on Friday at 7,547.6, up nearly 77 points on a week ago, on speculation that weaker economic news will push the pound lower. Ten year Gilt yields hardened to 1.02%. 
• First quarter GDP growth in the US was revised upwards from an initial reading of 0.7% to 1.2% on an annualised basis, reflecting better than expected business investment and consumer spending. The figure was ahead of the consensus forecast of 0.9%. 
• China saw its sovereign credit rating cut by Moody’s from Aa3 to A1, on concerns over rising debt levels. The country’s outlook was also cut from ‘stable’ to ‘negative’. 
• The second estimate of UK GDP growth in Q1 read at 0.2% quarter-on-quarter, which was down on the 0.3% figure reported in the first reading, largely due to weaker growth from consumer-facing industries. Business and financial services industries did much to support growth in Q1. 

Chief Economist comments: 

The UK economy slowed markedly in the first few months of this year, highlighting the overdependence on consumer spending to drive GDP growth last year. The good news is that there are initial signs that businesses are picking up the baton from consumers, with rising output and investment. Overall, one could argue that the Q1 consumer slowdown has been well timed, as a period of weaker growth is better than having a debt bubble burst further down the line. Later this year, the impact of the pound’s devaluation will drop out of the inflation figures, and it will become easier for the economy to grow in real terms.