Services Bolster GDP, Contractions Elsewhere

UK JAN GDP +0.3% M/M (FCST +0.1%); DEC -0.5% M/M

• UK GDP was more robust than consensus expectations in January, expanding by +0.3% m/m after the -0.5% m/m December contraction.
• Services grew +0.5% m/m, outpacing expectations by 0.2pp and accounting for the bulk of January growth after the -0.8% m/m fall in December.
• Meanwhile, contractions were recorded across industrial production (-0.3% m/m), manufacturing (-0.4% m/m) and construction (-1.7% m/m).
• The strength in services is the key takeaway here. The MPC are likely to be more focused on demand for services (and able to look through weakness elsewhere) because service price inflation is one of their concerns. Whether this is enough to change the view of any MPC member in isolation is unlikely, but in our view it would count as a better-than-expected data release - something the MPC said in February it needed to see for more rate rises. Around 25bp is currently priced in by markets.
• Note: the December -0.5% m/m GDP print has not yet be revised. If this is downgraded at the national accounts release end of March, we could see the Q4 print edge into the negative territory implying a Q3-Q4 technical recession.

Source: ONS