MNI 5 THINGS: UK GDP Growth Seen Slower Over Q1

--UK Q1 GDP Market Data Due for Release Fri

By Jamie Satchithanantham

     LONDON (MNI) - The first estimate of UK first quarter gross domestic

product will be released Fri, when we learn how economic growth fared in the

first three months of 2018. The MNI median expectation, taken from a poll of

analysts, looks for a drop in the quarterly rate to 0.3%, down from 0.4% in Q4,

with an annual growth rate of 1.3%.

                     2017 Q4           2017 Q4

            1st GDP Estimate  1st GDP Estimate

                       % Q/Q             % Y/Y

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

MNI Median              +0.3              +1.3

Prior                   +0.4              +1.4

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

     Analysts have a clear Q1 upward bias... 

     If the past ten first quarter results are go by there is a clear tendency

for analysts to over-estimate GDP over the opening three months of the year.

Over the past decade, analysts have overestimated Q1 growth on six occasions,

generating an average data surprise of -0.25pp. That said, despite only having

called the correct result three times, two of those have come in the last two

years.

     ...But the ONS tends to revise Q1 growth higher. 

     Whilst quarterly GDP growth figures are often revised, there is a

noticeable trend of Q1 growth being upgraded by the ONS, albeit often three

years after the third estimate. Between 2006 and 2014, the preliminary estimate

of Q1 growth was revised up on all but two years versus its estimate made three

years later. Between the preliminary estimate and the 'final' estimate (produced

two months later) growth has been revised up on only two occasions, however,

suggesting i) a few years are needed to see the 'true' growth rate and ii)

Friday's result is by no means set in stone.

     "Softer" Data Shifts Bank of England Stance. 

     At the March monetary policy decision meet, the BoE MPC's communicated that

"the underlying pace of GDP growth in the first quarter of 2018 remains similar

to that in the final quarter of 2017". Since then, in the words of Governor Mark

Carney, "we have had some mixed data" with business surveys and retail sales "on

the softer side". While Carney, in his April 19 BBC interview, danced around the

idea of a Q1 GDP growth forecast downgrade, his MPC colleague, Michael Saunders,

did not. In a speech made a day after Carney's, Saunders said "some recent data

suggests that the economy may have slowed a little in Q1". While their comments

are not technically representative of the collective MPC, it suggests an

alteration in the Bank's outlook over the past few weeks. Deciphering whether

the weakness can be looked through will be big talking point leading up to the

next monetary policy decision on May 10.

     Keep an eye out for ONS forecasts.

     Table 1, below, details the hard data we currently know -- less than half

needed to definitively compute the output measure of growth. Friday's data will

fill in the blanks (or question marks) and provide, based on the survey data

received by the ONS thus far, the best estimate for how each component fared

over February and March.

     Table 1: What We Know So far

                                     January  February  March

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

Services Output, % M/M                  +0.2         ?      ?

Industrial Production Output, % M/M     +1.3      +0.1      ?

Construction Output, % M/M              -3.4      -1.6      ?

     Snow impact shown in PMIs. 

     The set of PMIs over the first three months of the year are consistent with

quarterly growth of 0.3% in Q1, in line with analysts' expectations. Activity

was blighted by the extreme weather, depicted by the construction survey falling

into sub-50 territory and the services print falling to a 20-month low.

Reassuringly, the last time we had comparable weather, in Dec/Jan 2010, there

was a rebound the following month, but the March services PMI did allude to a

drop in business expectations. Any hangover in the April PMIs, released next

week, will be heavily scrutinised by observers given its proximity to the May 10

BoE monetary policy decision and would be perceived as an underlying weakness,

aiding the doves.

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

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