UK outlook: GDP growth set to slow in Q1 - Lloyds

Analysts from Lloyds Bank explain that activity indicators since the start of 2016 point to a slowdown in GDP growth during the first quarter in the United Kingdom.

Key Quotes:

“May Inflation Report unlikely to alter our forecast that the MPC will tighten policy in late 2017. “

“Recent indicators suggest a slight moderation in the pace of activity The final official estimate of UK Q4 GDP revealed a 0.1pp upward revision to 0.6% q/q from the second estimate. As a result, overall activity during 2015 was also revised up by 0.1pp to 2.3%, although this is still down on the 2.8% recorded in 2014.”

“More recent indicators of activity, including industrial production and business and consumer surveys, have suggested that GDP growth could slow in Q1. Much of the decline in sentiment appears to have reflected heightened anxieties about global growth prospects which were particularly acute in January and early February.”

“Consequently, we anticipate that growth will slow to 0.4% q/q in Q1 before edging up to 0.5% in Q2.”

“Headline and core inflation both surprised on the upside in March. Headline CPI rose by 0.5% y/y which was its fastest pace since December 2014. Meanwhile the core rate, which excludes energy, food, alcohol and tobacco, increased from 1.2% y/y in February to 1.5% in March. (...) We expect another 0.5% headline print in April as the upward impulses from weaker sterling, positive energy price base effects and further Budget-linked duties are countered by an unwinding of the impact from airline charges and easing household energy bills.”

“The current market expectation that the Bank Rate will remain at 0.5% until 2020 continues to look excessively dovish. We maintain our view that the first hike will take place towards the end of 2017.”