MNI 5 THINGS: Services To Determine Any Q4 UK Growth Revision

--UK Q4 GDP Market Data Due for Release Thursday February 21

     LONDON (MNI) - The second estimate of UK fourth quarter GDP will be

released Thursday, when we will learn if the pace of economic growth in the

final three months of 2017 differed from its preliminary estimate published a

month ago. The MNI median expectations, taken from a poll of analysts, sees

unchanged quarterly and annual rates of 0.5% and 1.5% respectively.

                     2017 Q4           2017 Q4

            2nd GDP Estimate  2nd GDP Estimate

                       % Q/Q             % Y/Y

----------------------------------------------

MNI Median              +0.5              +1.5

Prior                   +0.5              +1.5

Ahead of the release, we outline five themes for particular attention.

Growth Probably Unrevised but Much Rests on Services. 

     Analysts polled in our survey were unanimous in forecasting no-change to Q4

growth but most made the same caveat -- that there is no sizeable revision made

to Q4 services output. The sector, which accounts for roughly 80% of UK output,

was adjudged to have grown 0.6% q/q and whether we have an upside/downside

revision risk to Q4 growth will depend largely on the direction of any potential

revision to services growth. Since the preliminary estimate of Q4 GDP growth

delivered last month, the ONS' short term indicators pack revealed a modest

downward revision to Q4 industrial production and an upward revision to

construction output, as shown in the table below. According to statisticians at

the ONS, these revisions will likely offset each other and have no impact on the

second estimate of GDP.

Table 1: Services Will Determine Whether Growth Surprises to the Upside/Downside

                                       Initial Estimate  Revised Estimate

-------------------------------------------------------------------------

Q4 Industrial Production Output % q/q              +0.6              +0.5

Q4 Construction Output % q/q                       -1.0              -0.7

Q4 Services Output % q/q                           +0.6                 ?

Net Trade Will Drag on Q4 GDP. 

     After making a neutral contribution to growth in Q3, net trade looks poised

to drag on growth in Q4. The trade balance deteriorated significantly in Q4,

with the deficit rising to stg10.808bn from stg7.042bn in Q3, with much of this

due to imports of non-monetary gold. That said, any increase in the stock of

non-monetary gold will also show up as a boost to the inventories channel in the

GDP accounts so this double-accounting effect should be noted. Still, excluding

non-monetary gold, imports of goods rose 2.9% in the three months to December,

far exceeding a 0.3% rise in exports, and suggests the economy has struggled to

shift growth away from household spending towards trade amid the weaker domestic

currency landscape.

Retail Sales Points to Weaker Household Spending. 

     Retail sales volumes grew by an estimated 0.5% over Q4, after an upward

revision to the December m/m number, and is expected to add 0.03pp to Q4 GDP

growth. The Q4 quarterly rate was down from the 0.6% growth recorded in Q3

though and while some analysts saw household consumption growth unchanged at

0.5% q/q in the three months to December, others saw justification in

forecasting a softening to around 0.3% q/q in Q4.

Business Investment Update Due. 

     Gross fixed capital formation rose 0.3% on the quarter in Q3 while business

investment, a sub-component of the former, was up 0.5%. Eyes will be fixed to

see whether the latest advancements in Brexit negotiations and specifically the

evolving prospect of a transition deal will have had any effect on decision

makers across businesses. Though business investment had been trending lower

before the 2016 EU referendum, as shown in figure 3 below, since the vote

investment has only mustered a weak bounce back and has gradually trended over

2017.

BOE Modestly Upgrades Growth Forecasts. 

     Off the back of stronger global growth, the Bank of England in its February

Inflation Report upgraded its estimate for UK growth, concentrated primarily in

the near-term. Four-quarter growth in real GDP was predicted to rise by 1.7% in

Q1 2018 (previously estimated at 1.5%), heading up to 1.8% Q1 2019 (previously

estimated at 1.7%) before moderating to 1.7% in both Q1 2020 and Q1 2021 (both

unrevised).

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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