UK: Services Sector Drives Rebound in Q1 GDP

Consensus Forecasts

Renewed strength in services helped the UK to avoid a triple-dip recession in Q1 as the preliminary estimate of GDP showed a 0.3% (q-o-q) expansion. The services sector, which accounts for approximately three-quarters of GDP, advanced by 0.6% (q-o-q) following flat growth in Q4 2012. Elsewhere, industrial production increased by 0.2% (q-o-q) as mining and quarrying output rebounded by 3.2%. After a disappointing start to 2013, the manufacturing sector grew by 1.1% (m-o-m) in March and appears to be regaining momentum as stronger export orders helped to boost the PMI for the sector from 48.6 in March to 49.8 in April, only fractionally below the expansion threshold of 50. Furthermore, the PMI for services rose to an eight-month high of 52.9 in April, fuelling expectations that the recovery could be gaining traction. However, retail sales declined by 0.7% (m-o-m) and by 0.5% (y-o-y) in March, suggesting that private consumption may weigh on activity over the coming months due to weaker real wage growth. Still, the consensus forecast for 2013 GDP has been upgraded from last month.

Public sector net borrowing in the financial year 2012-13 (excluding the effects of the Royal Mail pension scheme and transfers from the Bank of England asset purchase facility) totalled £120.6bn, marginally bellow the £120.9bn figure recorded in FY 2011-12. The MPC left policy unchanged earlier this month after inflation held steady at 2.8% (y-o-y) in March. The Bank of England recently expanded its Funding for Lending Scheme to provide greater incentive for financial institutions to lend to small businesses. Data for March showed an upturn in mortgage approvals and the first gain in SME loans in nineteen months.

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