EU: Slovakia Maintains Veto On Russia Sanctions Extension

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We will also get June monthly output data alongside the Q2 print. Bloomberg consensus looks for a -0.1%M/M pullback, after May’s 0.10% upside surprise, which followed an upward revised -0.05% in April. Services output is seen slowing to flat M/M, while IP may see only a modest rebound - whereas construction could see another drop. The Bloomberg mean of -0.02%, strong June retail sales, and the sell-side views we've read skew risks to the upside here.

• A June print of -0.13%M/M is the threshold at which Q2 GDP could round up to 0.4%Q/Q or down to 0.3%. However, it would take a decent upside surprise (around 0.17%M/M) for Q2 GDP to beat consensus (all assuming no revisions).
• By sector, services output is seen flat in June (Bloomberg cons) after May's stronger-than-expected rebound (0.28%M/M). Wholesale and retail trade should see a positive month, after June retail sales surprised to the upside, growing 1.1%M/M (ex-fuel, 1.2% prior) on hot weather and promotions.
• Offsetting this, we could see some reversals lower in categories which drove May strength: arts, entertainment and recreation, professional and scientific activities, alongside another rise in "other service activities".
• Industrial production may only see a very modest bounce, with Bloomberg consensus at 0.1%M/M following -0.54% in May - mostly on a sharp pullback in mining and quarrying, which could reverse in June. Here, Lloyds (who see a stronger 0.4%M/M) point to a stronger rebound in oil/gas extraction activity. The energy aggregate under IP was likely boosted by electricity demand during the heatwave (seen in other European countries).
• Within IP, manufacturing could see another, but more modest, fall of -0.1%M/M (Bloomberg cons), after -0.54% in June, which had followed a run of upside surprises. Deutsche Bank (who see a weaker -0.6%M/M) highlight weaker auto manufacturing and softer manufacturing reports globally.
• For construction, Bloomberg consensus sees a second monthly contraction around -0.4%M/M, but we note a wide range of sell-side estimates here (-1.5% to +0.6%). Recall in May we saw a sharp -0.80%M/M for some delayed payback after Q1 strength. Deutsche Bank point to weak survey indicators in line with a -0.7%M/M drop in June (though BIC data adds upside risk), whereas SocGen look for a rebound of 0.5%M/M on favourable weather conditions.
• On an annual basis, consensus implies annual growth around 0.8%Y/Y (1.32% May), also expected to be mainly services-driven, with modest annual IP growth (mainly on manufacturing), but a large negative rate for construction.

The first estimate of Q2 GDP (due 07:00BST) is expected to show some slowdown in growth to around 0.4%Q/Q (Bloomberg consensus) from 0.63% in Q1, which followed 0.05% in Q4. The BoE's July MPR forecast pointed to a slightly weaker 0.34%Q/Q. While the touch weaker BoE forecast and some sell-sides point to mild downside risk, upside risks to June's monthly output data suggest some upside risk to the quarterly print (though revisions to April and May are possible).

• We don't expect the data to have much monetary policy impact. While BoE guidance has pointed to a weaker economy helping to contain inflationary pressures, MPC swing voters (such as Governor Bailey) now seem less focused on GDP - and still point to a soft labour market instead.
• On the risks to 0.4%Q/Q consensus: the 0.34% BoE forecast, the Bloomberg mean of 0.37%, and Deutsche Bank seeing potential downward revisions to April/May monthly data present mild downside risk. The main question is the extent to which higher energy prices and geopolitical volatility weighed on demand through the quarter, even if monthly data came in stronger than expected on the whole.
• On the upside: sell-side views point to higher demand from lower energy prices in June, stronger retail sales across the quarter, and inventory build indicated by the manufacturing PMI. MUFG (who see 0.5%Q/Q) highlight activity was likely supported by sunny weather and the World Cup.
• On an annual basis, GDP is seen rising 1.1%Y/Y (Bloomberg consensus), up from 0.91% in Q1 and 0.86% Q4.
• Although activity has held up better than most had expected early in the year (recall pre-May monthly data most forecasts were looking for 0.2%Q/Q in Q2), there are concerns over residual seasonality in the data and that, as a result, growth is being overstated in the first half of the year (particularly Q1).
• Recent MPC minutes have broadly shared the concern that growth was overstated in Q1. The BoE's survey steer model of underlying GDP points to around 0.1%Q/Q in Q2, before slowing further to flatline in Q3. For reference, this model saw 0.22%Q/Q in Q1 vs 0.63% actual.
• Recapping the Q1 expenditure details: household consumption 0.6%Q/Q (+0.34pp to headline GDP growth), govt spending 1.3%Q/Q (+0.28pp to headline), GFCF 0.4%Q/Q (+0.07pp to headline), net trade -0.42pp to headline (imports 1.4%Q/Q, exports 0.2%Q/Q).