UK: Weak growth numbers - ING

UK first-quarter growth was always going to be bad – but at just 0.1% QoQ, this is much worse than expected and is the weakest quarter since 2012, explains James Smith, Developed Markets Economist at ING.

Key Quotes

“It’s tempting to put a lot of this down to the snowy weather. The series of cold snaps forced many shops to shut, in some cases for days on end, whilst the economy overall will have suffered from lower production and temporary staff shortages.”

“But interestingly enough, the ONS said that the snow impact was “limited”. As always, given that over half of the first growth estimate is modelled, it is entirely possible that we see some revisions.”

“But we also suspect that consumer caution played a big part. Evidence from the consumer sector suggests that it was one of the worst quarters for retailers since the crisis.”

“The upshot for the Bank of England is that a May rate hike would be a tough sell. Admittedly, we think the market reaction to this data has been a little extreme (first hike now priced in for December). After all, the Bank has been clear it wants to tighten policy to help combat the possible threat of higher wage growth.”

“It now looks more likely than not that the Bank will opt to wait until August to buy more time to see how things evolve. But policymakers will also be acutely aware that this might be one of the best opportunities they get to raise rates this year.”