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GDP growth: Interest rates and what the economists say…

by: IFAonline
  • 28/04/2011
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GDP growth: Interest rates and what the economists say…
Economists react to yesterday's ONS estimate of UK GDP growth in the first three months of this year...

The ONS said the chained volume measure of GDP rose by 0.5% in the first quarter of 2011, following a fall of 0.5% in Q4 2010.

It said the effect of the snowy weather conditions in December is estimated to have subtracted 0.5% from growth in the fourth quarter. It added GDP has now returned to the same level as Q3 2010.

 

Schroders European economist Azad Zangana

Zangana said today’s data suggests whilst the government’s austerity measures are beginning to take their toll, they have not yet derailed the recovery altogether.

“As the Bank of England had been forecasting a 0.8% rise in growth for the first quarter, the growth numbers today should act as the final nail in the coffin for a May increase in interest rates.

“In our view, most of the risks to the UK economy stem from external factors now, such as the continuing rise in oil prices, and the European debt crisis.

“We expect the balance between growth and inflation to improve in the second half of the year, which will eventually prompt the Bank of England to raise interest rates – probably in August.”

 

RLAM economist Ian Kernohan

Kernohan (pictured) said a larger bounce-back might have been expected given the weather-related slowdown at the end of last year.

“In so far as we don’t expect renewed recession, our view remains cautiously optimistic on prospects for growth in the UK, however growth will be somewhat weaker than the 3% to 4% which normally occurs in the second year of a recovery.

“We still expect a small increase in interest rates towards the end of the summer.”

 

Ignis AM chief economist Stuart Thomson

Thomson said today’s figures point to the MPC holding interest rates for the time being.

“The importance of this figure is that it virtually eliminates the risk that the MPC will gain sufficient consensus to raise base rates from their current record lows over the next few months.

“We continue to believe base rates will remain at just 0.5% throughout 2011 and while there is a window of opportunity to raise rates in the first quarter of 2012, this will close rapidly during the second quarter as the withdrawal of excess global liquidity leads to a rapid deceleration in global activity.”

 

John Cridland, CBI director general

“We are seeing a modest rebound in economic growth, recouping the loss in output caused by the bad weather in the fourth quarter of last year. Growth of 0.5% in the first quarter is in line with our expectations and, while encouraging, it does reaffirm our view that the recovery remains slow and sluggish.

“The main reason the growth figures were not stronger is the contraction in construction, with the overhang into January from the bad weather. February’s construction figures show some recovery.”

 

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