Recent economic data have continued to paint a mixed picture on the health of the UK economy. While the 1.1% quarterly rise in GDP in Q2 has increased the chance that annual GDP growth will be closer to 1.5% than 1% this year, the timelier activity surveys have suggested that growth will fade considerably in the second half of this year. Despite this, UK markets seem to have largely shrugged off this mixed data – equities have rebounded sharply, corporate bond spreads have narrowed and sterling has strengthened further. And while nominal gilt yields have fallen recently, this has largely reflected the further fading of fiscal fears and the easing of inflation expectations.
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