MNI 5 Things: UK Q1 GDP Seen Unch from Dismal 1st, 2nd Est

     LONDON (MNI) - Friday sees the publication of the third estimate for the

UK's Q1 2018's GDP data. Below are five themes for consideration before the

release. 

     Table 1: MNI Median Analyst Estimates 

                                 Q4 Prior  2nd Estimate  MNI Median 3rd Estimate

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

2018 Q1 GDP Third Estimate

(Q/Q%)                                0.4           0.1                      0.1

     1.) MNI Median Points Heavily to Unchanged Q1: 

     Eight out of the ten analysts polled by MNI estimate growth will be unmoved

from its previous two estimates of 0.1% q/q, with only two forecasting an upward

revision. If correct, the MNI median suggests an un-flattering third estimate

awaits us Friday. 

     2.) Previous Third Estimates Imply a Revision Unlikely: 

     Since the upward revision of the first estimate of Q1 data in 2006, there

has been only one other example, coming in 2015. Both delivered an upward

revision of 0.1 percentage points. Downward revisions were seen in 2008 and

2009, knocking off 0.1 percentage points and 0.5 percentage points respectively.

The sum of the revisions shows a downward revision but this is heavily skewed by

2009's drastic 0.5pp downward revision. Taking the average would suggest a

rather mundane picture of an unrevised estimate from the weak initial 0.1%

reading. 

     3.) Index of Services to Determine Early Q2's Momentum: 

     Friday's Index of Services print will provide a clear indicator as to

whether Q2 is on track for a bounce back. It is of greater importance given the

fact that before Super Thursday on the 2nd August, the BOE will not have Q2 GDP

data as this follows the ONS's switch to reporting GDP on a monthly basis. So,

they will be reliant on the index of services data as a gauge of Q2 activity

given it accounts for roughly 80% of GDP. The MNI median for April stands at an

improved 0.3% m/m, up from March's 0.1%. However, it is worth noting that the

MPC's forecast of 0.4% GDP growth for Q2 would need much stronger growth in

services than the median estimate. 

     4.) Current Account Deficit Anticipated to Narrow Further: 

     The full-year current account deficit in 2017 was the lowest since 2011, in

part thanks to a stg0.8bn narrowing between Q4 and Q3. A further narrowing in

the opening three months of 2018 is supported by a smaller trade balance

deficit, stg6.7bn versus stg7.6bn in Q4, stemming from a fall in the goods

deficit and the reopening of the Forties oil pipeline. 

     However, the outlook of the other two components of the current account

(primary and secondary income balances) is a little more obscure. On the one

hand, sterling weakness should boost UK firm's foreign earnings but the slowdown

in the euro area could have offset this. Furthermore, Q4's narrowing was partly

down to low contributions to the EU's budget, which may have reversed this

quarter. Putting this together, the MNI median estimate looks for a narrowing in

the overall deficit to stg17.7bn in Q1 from Q4's stg18.4 bn. 

     5.) Household Savings Ratio: 

     The yearly household savings ratio since 1963 has on average stood at 9.0%

but has steadily been in decline in recent years. The ratio fell to 7% over the

whole of 2016, down from 9.3% in 2015, and fell even further in 2017 to a

record-low 4.9%. MNI analysis has pointed to households dipping into their

savings to compensate for the squeeze on real incomes, somewhat exacerbated

following the Brexit referendum. Given real wage growth's return to positive

territory in Q1, it will be worth seeing if this translated into households

replenishing their savings or using this extra income to spend.

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

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