UK Q1 GDP Grows 0.5%, In Line With Expectations

Tyler Durden's picture

Nothing surprising out of the UK, whose economy grew just as predicted, and enough to offset a comparable drop in Q4 of last year. Per Bloomberg: "Gross domestic product rose 0.5 percent from the final quarter of 2010, when it fell by the same amount, the Office for National Statistics said today in London. The result matched the median forecast of 28 economists in a Bloomberg News survey. Services expanded by 0.9 percent, the most since 2006." Now if only inflation could be cut to just double the rate of economic growth... And with the world now looking at the US 1st GDP number due out tomorrow, which will ultimately be revised to sub 2%, we wonder just how a global economy, whose key economies are barely crawling higher, and in the case of Japan, outright collapsing, supposed to lead to a 3.5% global GDP growth in 2011.

Some more on the UK number:

The economy’s production level has returned to where it was before the fourth quarter, when the coldest December in a century disrupted business across the country. Bank of England officials are split on whether growth is strong enough to withstand the biggest fiscal squeeze since World War II, allowing them to remove stimulus to fight inflation.

“The recovery is more muted than we would have liked though the data suggest some underlying strength,” Philip Rush, an economist at Nomura International Plc in London, said in an interview. “The bank will want to see more data showing output is normalizing and may want to wait until their forecast round in August.”

Manufacturing led the rebound.

U.K. manufacturing increased by 1.1 percent in the first quarter, driving a 0.4 percent gain in industrial production. Construction shrank 4.7 percent, the most in two years, the statistics office said.

While the pound’s drop of about 23 percent on a trade- weighted basis since the start of 2007 has boosted manufacturers by making British goods cheaper to buy abroad, they face pressure to raise prices because of higher commodity prices. The Confederation of British Industry said yesterday its measure of expected average selling prices for factories rose to 36 in April from 33 to reach the highest since January 1990.

Visualizing UK inflation and GDP:

And Goldman's take:

Bottom line: GDP rose +0.5%qoq (+2.0%qoq annualised) in Q1, according to the ONS's preliminary estimate, barely reversing the 0.5% decline in Q4. This was in line with consensus but below the Bank of England's February forecast of a +0.8%qoq gain (GS = +0.6-0.7%). While the composition is stronger than the headline number implies (ex-energy GDP rose +0.6%qoq) this is still a weak number.

1. The weakness was centred in construction (-4.7%qoq), utilities (-3.5%qoq) and oil and gas extraction (-0.4%qoq). Manufacturing (+1.1%qoq) and services (+0.9%qoq) were strong and ex-energy GDP rose 0.6%qoq (Table 1).

2. Following the weather-distorted 0.5%qoq decline recorded in Q4, the official GDP estimates suggest that, over the two quarters taken together, growth in the economy was flat.

3. The growth rate implied by business surveys is significantly stronger than this. The Composite PMI, the CBI surveys (both for manufacturing and retail), and the Bank of England's Agents Scores are all some way above their respective historical averages and consistent with above-trend growth. The BCC survey - the weakest of the business surveys - is a little below its historic average, but nevertheless consistent with GDP growth of 2-2.5%qoq annualised. And the latest labour market developments are also difficult to reconcile with the official growth data: in the three months to February, the unemployment rate declined from 8.0% to 7.8%, aggregate employment rose 143k, and average hours worked rose by 0.6%pts, from 31.6 to 31.8. Chart 1 presents a regression-based analysis of what each of these indicators implies for GDP growth.

4. Over time, we expect the ONS's preliminary estimates for growth over Q4 and Q1 as a whole to be revised significantly higher. Early estimates of GDP tend to be biased downwards, on average, in the UK and the upward revisions have typically been especially large during and subsequent to recessions (when economies undergo significant structural changes). The largest revisions to GDP typically occur a number of years after the initial release, when the ONS has access to more comprehensive datasets (such as income tax returns). We won't have truly reliable estimates for Q1 growth until 2013.

5. The MPC also treats the official GDP data with some caution: reflecting the tendency of GDP to be revised into line with survey indicators over time, the MPC estimates its own 'backcast' of GDP data. In the February Inflation Report, the MPC estimated that the level of GDP was likely to be revised 1½-2% higher than reported in the latest vintage of ONS national accounts. Nevertheless, the committee attaches more weight to the official output data than we do and, therefore, the negative surprise in today's data relative to its February forecast is significant. We will update our forecasts for the economy and for policy in the next UK Economics Analyst (published tomorrow).

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tallen's picture

RPI at 5.5%, CPI at 4%. GDP growth at 0.5%. At this rate England's gonna be third world in a few years.

Cassandra Syndrome's picture

Yep, the cheeky gits use a GDP deflator of only around 1.5%. Cheating or what?

4realmoney's picture

The "Royal" Wedding is England's Black Swan Song

Yen Cross's picture

I like long GBP.

Dick Darlington's picture

Remove the 10%+ deficit and let's see how the "growth" looks like...

slewie the pi-rat's picture

it snowed, remember? 

then, it melted, remember?

and, there's a wedding, remember?

Bow Tie's picture

we've got such a high official (and even higher real) inflation rate to begin with, a nominal 0.5% is really nothing to cheer about.

relative GBP strength is going to collapse as the housing market crumbles and more QE is needed to offset any pain from future rate rises.

and we didn't even get to the current debt and deficit levels.

FunkyOldGeezer's picture

We're muddling through, maybe better than who knows?

The ENTIRE West will be third world in a few years.

A Man without Qualities's picture

and equities go back to their daily melt-up....

Josephine29's picture

However people like Goldman Sachs try to spin the numbers the fact is that UK economic growth is at best flat and looks like it is going nowhere. The Notayesmanseconomics blog is very critical of Bank of England policy.

This brings me back to a theme of mine for the UK which is stagflation. How do we define it? No growth since the third quarter of 2010 and an official inflation rate which at 4% is twice its target seems to do the job. The first part of the sentence gives us the stag and the second the flation.

If we put to one side my view that the UK needs a change of economic policy and look at the consensus view of our Monetary Policy Committee it is apparent that they are in danger of not only failing on my terms but also failing on their own. In truth we can see that they have really targeted economic growth in the UK and the result of this has been no growth at all over the past six months


So their expansionary policy has provided little or no growth but plenty of inflation,exactly what do they think that their job is?

Bow Tie's picture

I follow the Notayesmanseconomics blogger, Shaun Richards, and he is certainly one of the best straight-headed analysts of UK monetary policy out there.

Lord Peter Pipsqueak's picture

So the 30% devaluation of sterling by the Bank of England was justified at the time by saying it would help the country export its wqay out of its mess.Only problem is the imports the manufacturers need have just gone up 30% thereby removing most of the advantage in one fell swoop.Add to this the boss of UK Vauxhall motors recently complaining he cannot source UK made parts for their cars(having to import them at £ +30%)and you can see the Bank of England is merely trying to inflate its way out of this mess and at the same time saying it is targeting inflation,it has, like the Fed, zero credibility.It is more likely they are targeting inflation at 10% but telling us they are targeting 2%.

Andrew Sentence the outgoing member of the Bank Of England rate setting commitee has pointed out that since 2006 inflation has been above its 2% target for 46 months,and above 3% for 28 months: 

Expect further sterling weakness until the real UK economy-the housing market- recovers.Then the average Brit can resume discussing how much richer they are down the pub after their house has just gone up in price,and go to sleep thinking how clever and lucky they are to able to make money without having to work for it.

Meanwhile the other half of the UK economy -the chavs,the single mothers and the economic migrants can also sleep soundly in the knowledge they will never have to work for the cheque that arrives each week,and when they require an upgrade to their flatscreen TV or the latest mobile phone, hey just knock another kid out,the state will then pay you even more money to do nothing.What a truly great country it is.

Broomer's picture

Strange, I can't embed images...


Lord Peter Pipsqueak's picture

We're No1 at what exactly?

Broomer's picture

Please notice that the image says "WERE #1", not "WE'RE #1".

spacecadet's picture

 and in the case of Japan, outright collapsing, supposed to lead to a 3.5% global GDP growth in 2011.

Simple. 3.5% inflation will give them the desired result.