Investment Institute

Alertas de mercado

UK reaction: Growth unchanged in April, but a rise in Q2 is on the cards

12 Junio 2024 (3 min de lectura)

Escrito por

Gabriella Dickens

G7 Economist – Macro Research

KEY POINTS

GDP held steady on the month in April, slightly stronger than the consensus for a decline of 0.1%

Activity still was up 0.7% on a three-month-on-three-month basis and growth would rise by 0.3% in Q2 even if GDP remained unch in May and June

A further rise in services (0.2% mom), was offset by declines in production (-0.9% mom) and construction activity (-1.4% mom)

We remain comfortable with our forecast for growth of 0.7% this year

The Bank of England will probably continue to look through any recovery in activity, instead focussing on the incoming inflation and wage data. We expect the first 25bp cut to Bank Rate in August

The recent rebound in monthly GDP paused in April, but we still expect activity to increase across the quarter as a whole. Indeed, while April saw no monthly increase (slightly above the consensus for a drop of 0.1%), on a three-month-on-three-month basis, activity was still up by 0.7%. As a result, even if GDP remains unchanged in May and June, we will still see a quarter-on-quarter rise in output of around 0.3%.

The breakdown showed that services activity rose by 0.2% on the month, the fourth consecutive rise, driven predominantly by increases in computer programming and consultancy related activities, as well as a jump in R&D and strong growth in arts and recreation. The main offset was a 2% month-to-month drop in retail, which suffered due to the wetter-than-usual weather; this drag likely rolled into May. Weak retail sales weighed on consumer-facing services, which fell by 0.7% on the month; but we expect a renewed rebound over the coming months, as rising real incomes and improving confidence spurs households to increase their spending.

The rise in services activity was offset by declines in production and construction. Indeed, the former dropped by 0.9% on the month, following growth of 0.2% in March, while the latter declined by 1.4%, its third consecutive monthly drop. Manufacturing output was weighed down in April by declines in pharmaceutical products and food, alcohol & tobacco. Nonetheless, on a three-month-on-three-month basis, total production was still up 0.7%, driven by manufacturing output. And we think a bumpy recovery likely will continue this year, as global demand picks up. By contrast, construction activity is in the doldrums - down 2.2% on a three-month-on-three-month basis - with declines in both new work and maintenance activity. The S&P Global construction PMI, however, rose to a two-year high of 54.7 in May, from 53 in April, with broad-based increases across commercial and residential activity. As a result, we expect construction activity to start to recover, albeit gradually, from here.

Looking ahead, we think growth will average around 0.3% quarter-on-quarter over the rest of the year, driven largely by a rebound in private consumption, leaving the annual growth rate at 0.7%. As such, we think the MPC will continue to see this recovery in activity as broadly neutral for the policy outlook, instead directing their focus towards the incoming inflation and labour market data. An annual increase of 0.7% is still below our estimates of trend growth of around 1.3% to 1.4%. We continue to see the first rate cut of 25bp in August with a further 25bp cut in November.