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James Smith, developed markets economist at ING, suggests that the UK’s 0.5% first quarter growth figure was in line with both ING’s and market expectations, but it masks some pretty interesting developments beneath the surface.

Key Quotes

“PMIs had suggested that an unprecedented level of stockpiling occurred during the first quarter, despite some anecdotal signs that low warehouse vacancy rates had constrained the ability of some firms to boost inventory substantially. But in the end, inventories made a sizable contribution to quarterly growth, as firms scrambled to build up supplies of components and finished goods to insulate against potential Brexit supply chain disruption.”

“Consumer spending grew by 0.7% during the first quarter, the fastest quarterly growth in two years.”

“While much of the inventory boost was offset by imports, we still think there is the potential for a correction in overall economic growth in the second quarter. Manufacturing contributed 0.2 percentage points to first-quarter GDP growth, and this is unlikely to be repeated over the coming months – especially given the uncertain outlook for global growth.”

“The challenges facing business investment suggest to us that a Bank of England rate hike this year is still unlikely, although recent hawkish comments from Governor Mark Carney suggest a November move shouldn’t be ruled out completely.”