One major release for us (and most everyone else) this week – the first estimate of q1 GDP. Where this lands feels like it’s taken on additional importance in the last few days with the new will they, won’t they vibe coming from the MPC.
At the start of the year we, and many other forecasters, had pencilled in growth of around 0.4% in the first quarter of 2018, with expectations that the narrative of hard-pressured households but more buoyant external demand would continue to prevail in the early part of the year.
Then the snow hit and official data came dribbling in weaker than expected, including that from overseas – notably in Europe. Construction output took another hit in February and indicators of retail sales were beyond poor as consumers stayed at home.
In the face of official production data and softer survey indicators, 0.4% growth in 2018q1 now seems more than optimistic with a growth rate of half that looking much more probable.
Looking at how the output breakdown might play out this week, starting with manufacturing. After inching up in January, output retreated in February. However, ONS did not attribute this to the ‘Beast from the East’ and weather-related production distributions are likely to be seen in the March data, leaving manufacturing flat or fractionally down on the quarter.
Construction activity will see further falls – again weather-driven, dragging on GDP growth overall. Increased energy demand, however will have seen another positive month for utilities.
Critical to the overall number is what’s happening in services, especially consumer-facing ones. A sluggish quarter would contribute to keeping GDP growth down at 0.2% on the quarter, and 0.1% is not impossible.
Anyway, everyone is expecting something unspectacular, so what’s the big deal? The detail will be more closely watched because the estimate will sway the call on the next interest rate rise. A 25bp rise was a racing certainty with analysts thinking the Bank would look through temporary weakness in the q1 numbers.
But with the Governor more recently warning that nothing is certain in the May meeting, we’ll have to wait to see if the detail in Friday’s release can give us some clues on which way the majority will jump.