UK GDP data - PwC comments

May 10, 2019

Commenting on the UK GDP data out today, Mike Jakeman, senior economist at PwC, said:

"The economy showed considerable resilience to acute political uncertainty in the first quarter of 2019, rising by 0.5% quarter on quarter, from 0.2% in the fourth quarter of 2018. In year-on-year terms, growth accelerated to 1.8%, from 1.4% in the previous quarter.

"Households continued to spend, with private consumption rising by 0.7% quarter on quarter. But more significant was the return to growth of business investment, which expanded by 0.5% after four consecutive quarters of decline as firms delayed investment decisions owing to Brexit uncertainty. The return to growth in the first quarter was not because any certainty was provided by politicians. Instead, firms are likely to have spent more on contingency planning and perhaps decided that some investment decisions could be delayed no longer, after a year of sitting on the sidelines.

"There was also a sizeable contribution to growth made by inventory accumulation, reflecting the Brexit-related stockpiling made by companies to minimise the impact of a potential no-deal outcome at the end of March. With warehouses bulging, we now expect inventories to subtract from growth in the coming months.

"However, there was some evidence in the monthly data of Brexit exerting a greater toll: the economy as a whole shrank by 0.1% month on month in March, during the weeks when tension was at its greatest. Here, the usually-reliable services sector contracted slightly and there was a big decline in the volatile construction sector.

"It is fair to say that the economy has performed well in the face of acute political uncertainty, buoyed by households continued determination to spend. However, we note that some of the factors that have contributed to a strong GDP print in the first quarter are likely to detract from growth in the coming months. It is also important to recognise that with the outcome of Brexit still unresolved, there is a strong possibility that further bouts of political tension could exert downward pressure on the economy later this year. We continue to project growth of around 1.2% this year."

Ends.

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