Markit comment on UK GDP data

Markit chief economist Chris Williamson has published a brief comment on UK GDP data.

"UK GDP fell by a less than expected 0.5% in the final quarter of the year, better than the previous estimate of 0.6%. The decline overstates the weakness in the economy, reflecting the bad weather at the end of last year, but is nevertheless still a dire reading compared to the UK's peers.

"Production rose more than previously thought, and services and construction both fell less than the prior estimate. However, the decline in household spending was revised up from -0.1% to -0.3% and export growth was worryingly marked down from +2.3% to +1.7%.

"Based on the monthly data flow and the business surveys that we have seen so far in the first quarter, we expect GDP to have rebound by 0.5% in Q1. Unfortunately, this merely means that economic growth was probably flat over the past two quarters on average.

"Going forward, the accelerating pace of government spending cuts is likely to further hit growth, both directly and via the impact on already weak consumer sentiment. Note that the Q4 decline in GDP occurred despite a boost from a 0.4% increase in government expenditure.

"With consumer spending accounting for around two-thirds of all spending in the UK economy, and household confidence having already deteriorated in March to the weakest since the height of the recession, growth looks likely to be subdued at best in the remainder of the year.

"These GDP data probably do nothing to change the views at the Bank of England. Instead, the index of services data for January and the business surveys for March are likely to dictate policy in the near term."   

For Markit's latest analysis of PMI data in Q1 click here.

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Policy

Nash Vermont | | Permalink

"These GDP data probably do nothing to change the views at the Bank of England. Instead, the index of services data for January and the business surveys for March are likely to dictate policy in the near term."
He is making a very valid point.

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