MNI DATA PREVIEW: UK GDP Seen Lower In Q1 On Virus Impact

-- GDP projected to fall by 2.5%

By Irene Prihoda

     LONDON (MNI) - The UK economy is seen contracting 2.5% q/q in Q1, while the

annual rate is projected to drop -2.1%, according to market forecasters, with

the median outlook slightly more optimistic than the Bank of England's

projection of a 3% contraction.

     Last year ended on a weak note, with quarterly GDP coming in flat q/q,

while annual growth fell to 1.1%, its slowest since Q1 2018. Household

consumption flatlined already in Q4 and business investment fell by 0.5%, both

figures are likely to fall in Q1. Net trade and a rise in government consumption

prevented a negative reading in Q4.

     The weak trend continues with m/m GDP rising by only 0.1% m/m in January

and falling by 0.1% in February, while the three months average rose 0.1% after

two consecutive months of no growth. In March, markets look for a contraction of

8.0% m/m while the three-month average is forecast to fall by 2.6%.

     Activity already eased before the lockdown in March when people were asked

to maintain social distancing. Retail sales plunged 5.1% in March after ticking

down 0.3% in February, fully offsetting January's 1.2% gain and resulting in a

1.5% quarterly decline. The index of services slowed in January (0.1%) and

February (0.0%) and is expected to slump to -8.0% in March.

     Industrial production fared slightly better, gaining 0.2% m/m in January

and 0.1% in February. However, due to factory closures and supply chain issues,

activity in the sector is likely to have fallen in March. Analysts look for a

5.6% drop at the last month of Q1, offsetting the previous increases.

     Surveys indicate an unprecedented drop in activity with the BOE's decision

maker panel noting that sales are projected to be 45% lower than normal in Q2

and business investment 50% lower. According to Gfk, consumer confidence plunged

at the end of March and remained at historically low levels in April. The UK's

composite PMI slumped to a series low in April, showing record declines in

activity, new work and employment.

     Looking ahead, the outlook for Q2 is bleak as the UK remained in full

lockdown well into May when other economies started to open-up again, shifting

the main burden to Q2. Shops are expected to open again in June and the

hospitality industry follows July earliest. The Bank of England's estimations

pencilled in a 25% decline in Q2 2020 as activity is expected to remain low

during the second quarter. Nevertheless, the MPC sees GDP picking up relatively

rapidly after social distancing measures are eased.

--MNI London Bureau; +44 0203 865 3814; email: irene.prihoda@marketnews.com

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

[TOPICS: M$B$$$,M$E$$$]