UK: Recovery Prospects Improve

Consensus Forecasts

The second estimate of Q1 GDP saw growth unrevised at 0.3% (q-o-q). Private consumption advanced only 0.1% (q-o-q), its weakest pace of expansion since Q3 2011, while gross fixed investment contracted by 0.8%. Depleted external demand saw total exports fall by 0.8% (q-o-q) as net trade subtracted from Q1 GDP. Still, our panel has upgraded its 2013 GDP forecast this month after more recent indicators suggest that the recovery is gaining some momentum in Q2. The dominant services sector was the primary driver of growth in Q1, with activity increasing by 0.2% (m-o-m) in March after an upwardly-revised 0.9% jump in February. Industrial production grew by a modest 0.1% (m-o-m) in April, as the manufacturing sector shrank for the first time since January. However, the PMI for manufacturing leapt from 50.2 in April to 51.3 in May, well above its growth threshold. The construction industry has weighed on activity throughout 2013 so far, although increased residential construction saw the PMI for the sector unexpectedly climb to a seven-month high of 50.8 in May. Meanwhile, consumer confidence surged to a six-month high in May, fuelling hopes of a rebound in retail sales following their 1.3% (m-o-m) decline in April.

Inflation cooled from 2.8% (y-o-y) in March to 2.4% in April, owing to significantly weaker fuel costs. The MPC elected to leave monetary policy unchanged for an eleventh successive month on June 6. However, the consensus for 2013 inflation has been reduced this month, suggesting that incoming Bank of England governor Mark Carney may have scope to inject additional stimulus should the recovery falter.

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