UK: Economy still weak? – RBS

Analysts at RBS point out that the second estimate of GDP confirmed Q1 was still a soft one for the UK economy and the ONS maintains that the weather played a limited role in the disappointing figure.

Key Quotes

“Yes construction and retail took a hit. But energy supply (heating chilly homes) and online sales (something to do on snow days?) provided a partial offset. Better news was to be found in the steady expansion of the services sector (amidst a longer-term slowing trend) and, due to continuing strength in putting people into work, the compensation of employees grew at its healthiest pace since Q3 2016.”

“The index of services reading for March confirmed Q1 was an okay one for this sector. Growth of 0.3% across Q1 was in line with the 2017 average.”

“But like the broader GDP gauge the services sector shows an unmistakable slowing trend in recent years. Over the past three months it has grown by just 1.2% compared to the prior year.”

“The retail sales data was ‘full of the joys of spring’ as the April reading bounced back, rising 1.6% over the month (vs. -1.1% in March).”

“However, scratching below the surface and the cheer fades. The quantity of goods sold over the last six months remained flat and current growth (1.4%y/y) benchmarks poorly against the five year average (3.3% y/y).”

“Amidst disappointing economic growth and ongoing Brexit angst, the Chancellor will be pleased with the strong start to the new tax year for the public finances. Last month the government borrowed £7.8bn – the lowest April figure in a decade and beating official forecasts. Strong income tax receipts boosted government coffers. Osborne’s Soft Drinks Levy, or ‘sugar tax’, also yielded its first revenue. Further revisions shaved £2bn off last year’s borrowing to £40.5bn, almost £5bn better than Mr Hammond assumed back in March.”

“Inflation fell for the third month in a row in April, slipping to a 13-month low of 2.4% y/y.”

“Underlying inflationary pressures continue to wane, with core-CPI falling to 2.1%. With the impact of sterling’s fall now largely washed through, other inflationary pressures, notably the higher oil price, continue to build.”

“While consumer price inflation eased in April, UK factory gate inflation remained unchanged at 2.7% y/y. However, there are signs that inflationary pressures are building.”

“UK house prices continue to grow at a slow pace, following the trend that started in mid-2016. In March, house prices grew by 4.2% on the year but fell by 0.2% on the month.”