As we flagged in our look ahead on Monday, today saw the release of ONS’s first monthly GDP release – alongside a lot of associated information on trade, construction, services and industrial production.
We’ve waded through a good chunk of it and here are our main takeaways, but firstly some snaps for ONS for making this new GDP release clear and accessible.
Some signs of an uptick in activity
The third cut of GDP data covering the first three months of the year showed modest GDP expansion of 0.2%. This marked a continuation of the slowdown in growth seen through 2017, but was also exacerbated by episodes of dreadful weather, which was particularly evident in the weak construction data.
The question was, therefore, would the subdued pace of growth be fleeting (and then how would the Bank of England respond …. but we’ll come to that later).
The headline from today’s GDP release was that growth in the three months to May was still modest at 0.2%, but looking underneath the top line it seems that some of the weakness was indeed temporary, with services growth ticking higher and construction output staging a decent rebound in May.
Manufacturing output disappoints in May
However, on-going weakness in industrial production – a good chunk of which is manufacturing – is still evident. After sliding 1.3% in April, manufacturing output recovered only a small part of this lost ground in May – increasing by 0.4% on the month. This sees manufacturing dragging on overall GDP in the three months to May.
A closer look at manufacturing sub-sectors shows that all were playing a part in the weak industry performance over the past three months. We saw construction related (electrical equipment, rubber, plastics and non-metallic minerals) sectors struggle at the start of the year, the latest data shows that pressure on these industries continues.
Metals, which saw output down nearly 5% in the three months to May looks to be hit by a combination of construction gloom and US trade policy – both of which are pulling activity down in the face of what had been a brightening global demand outlook.
And sectors that had been faring rather better through 2017 – such as transport and mechanical equipment also had a tough three months to May.
Bucking the trends was strong growth in electronics – an industry which has been reaping the benefits of the strong global growth and food & drink, which should see further growth because of some sporting event that’s happening.
Rate rise delayed?
So a bit of a mixed bag of data but not necessarily one that argues for more wait and see from the Bank of England’s monetary policy makers.
The disappointing industrial data aside, today’s data aren’t out of line with expectations set out in the May Inflation report. And there’s a good chance that the next monthly GDP reading, which will see the big weather-related contractions in March drop out of the three month calculation, could be a bit stronger that we’ve seen for a while. Markets are betting that this keeps the Committee on track for an August rate hike. But that meeting is over three weeks away and the way things are going it feels like just about anything could happen between now and then.