ONS published its preliminary assessment of the performance of the UK economy in the first quarter of 2018 this morning and it did not, as we kinda expected, make for cheery reading. The headline – which as we always know from the first estimate is subject to revision – was a slowdown in GDP growth from 0.4% at the end of 2017 to 0.1% in the three months to March 2018.
UK growth slows
The big news was the weaker than expected quarter on quarter expansion in the first three months on the year. At 0.1%, this was the slowest rate of expansion since the end of 2012. While there will no doubt be a lot of emphasis on this fact, this dismal performance wasn’t entirely unexpected – as we alluded to at the start of the week.
Construction has a beastly quarter
We’d already had a couple of months of awful data for construction activity, not to mention the weak PMI survey readings. Given the snow and the wind (!) in March a thumping contraction over the quarter was pretty much a certainty. While we might expect some subsequent recovery in the coming quarter, the challenges seen in commercial building looks set to persist.
...contributing to some slowdown in manufacturing
Manufacturing did OK in the first quarter, expanding by 0.2% - which is actually slightly better than we had pencilled in. Nevertheless, this represents a pretty hefty slowdown from the second half of 2017 when quarterly growth rates exceeded 1%.
The construction story provides at least some explanation here, with big falls in the non-metallic minerals sector (predominantly the construction supply chain) and metal products (ditto, but to a lesser degree).
Some industry positives at the start of 2018
Investment goods sectors, such as mechanical equipment and other transport continued to forge ahead, growing by a shade over 4% and 5% respectively. This is still very much in line with our survey data from the start of the year and our sector outlook for 2018.
Sluggish services growth
Overall services expanded by 0.3%, bumping along at the same pace as the back end of last year. The on-going consumer squeeze has been well documented with poor retail sales and declining consumer confidence casting a big cloud over the substantial services element of the economy.
Rate rise expectations recede
Disappointing is how many commentators will no doubt describe today’s read out of the economy at the start of 2018. But does this give us more of a steer on where the balance of views on the MPC will fall in just under a fortnight’s time? A fall in Sterling after the data release suggests markets are seeing the likelihood of a May rate rise fade. Given the sector composition of the weakness in today’s numbers it still feels like a knife-edge judgement. Maybe next week’s PMI on the strength of activity at the start of q2 will help provide more clarity.