Will investment keep punching above its weight?

Last week’s release of the expenditure breakdown of Q1 GDP confirmed that an upturn in business investment has turbocharged the UK’s economic recovery. And looking ahead, there’s every reason to expect it to continue to make a significant contribution to GDP growth, despite its fairly small share of overall expenditure.

We also received further evidence last week that the economic recovery may have gathered pace in the second quarter. Indeed, on the basis of past form, the strength of the latest Bank of England’s Agents’ Report suggests that quarterly GDP growth could exceed 1% in Q2. Admittedly, it would be foolish to reach any strong conclusions on the basis of this data alone. But the balance of risks to our above-consensus GDP forecast of 3% in 2014 now appears to lie slightly to the upside.