LONDON: A sharper than anticipated slowdown in U.K.’s economic growth in the March quarter, apparently drew a line under the economy’s recent resilience, noted Lloyds Bank in a research report. The economy grew 0.3 percent sequentially in the first quarter of this year, showed preliminary estimate. This was much below the 0.6 percent sequential pace registered in the second half of last year, undershooting the central bank’s forecast of 0.5 percent quarter-on-quarter.
Looking at such poor momentum, it appears that the rebound in the second quarter would be more difficult. However, the available data for the second quarter, so far indicates to certain recovery in the economic momentum with the PMIs and retail sales reports for April, all recording solid rebounds on the month. If the strength of the surveys is seen in the hard data, a 0.4 percent sequential growth rate in the second quarter would set up 1.7 percent growth in this year as a whole, noted Lloyds Bank. That growth rate would be just a slight slower than both the 1.8 percent recorded last year and the central bank’s estimate of 1.9 percent.
Furthermore, recent momentum appears to be building on slightly weak foundations. Consumer spending gave the strong impetus to the U.K. growth in recent quarters; however, timelier retail sales data have witnessed a sharp slowdown in momentum. In the first quarter, volume of retail sales dropped 1.4 percent sequentially, while April sales recovered solidly at 0.3 percent. But the quarter pace continues to be low. With consumers witnessing a limit on purchasing power as sterling’s post-referendum drop induces accelerating inflation, their appetite to continue to pare back savings might be restricted, stated Lloyds Bank. The negative impacts of rising prices control the boost to net exports from the 12 percent sterling depreciation in effective terms since the referendum, and 18 percent since the mid-2015 peak. Higher capital goods prices would act as a warning to investment spending. Business investment was already widely flat in 2016, while the medium-term political and economic backdrop continues to be uncertain.
