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May rate rise less likely as GDP data ‘worse than feared’

by: Paloma Kubiak
  • 27/04/2018
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UK Gross Domestic Product (GDP) was estimated to have grown by just 0.1% in the first three months of 2018, casting further doubt over the Bank base rate rise expected next month.

The GDP growth fell far below expectations of 0.3% for Q1 2018 and it falls short of the 0.4% recorded between October and December 2017.

In fact, according to the Office for National Statistics (ONS), this is the slowest growth since the last quarter of 2012, with construction dragging down the figure, having fallen by 3.3%.

Manufacturing growth slowed to 0.2% while production increased 0.7% and energy production rose due to the below-average temperatures.

The ‘Beast from the East’ and subsequent storms affected retail sales but the impact on GDP was “generally small, with very little impact observed in other areas of the economy”.

The ONS stated services industries were the largest contributors to GDP growth, increasing 0.3%, however the longer-term trend shows a weakening in services growth.

May rate rise on ice

The GDP data was ‘worse than feared’, according to Ben Brettell, senior economist at Hargreaves Lansdown.

He said: “The news casts further doubt over a May interest rate rise. As recently as last week markets were pricing in a near 90% chance that the Bank of England would raise rates next month, but this fell to more like 50% after comments from Mark Carney suggested potential ‘softer’ economic data and continued uncertainty over Brexit meant policymakers weren’t wedded to a May hike. Today the market’s saying there’s just a 25% chance that rates will move in May.

“Unsurprisingly sterling fell sharply on the news, losing around three-quarters of a cent against the dollar and half a cent against the euro as traders hastily revised their interest rate expectations.”

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