United Kingdom: GDP continues to expand at a muted pace in Q1
GDP increased 0.1% on a seasonally adjusted quarter-on-quarter basis in Q1 (Q4 2022: +0.1% s.a. qoq). On an annual basis, economic growth cooled to 0.2% in Q1 from the previous quarter’s 0.6% increase. Q1’s reading marked the softest expansion since Q1 2021. Public-sector strikes, weak overseas demand, high inflation and rising interest rates likely all capped momentum in the first quarter. However, improved consumer sentiment and a robust labor market provided support. Looking at the monthly breakdown, economic momentum eased throughout the period, with growth in January followed by flat activity in February and a contraction in March.
Household spending growth moderated to 0.1% seasonally-adjusted quarter-on-quarter in Q1 compared to a 0.2% expansion in Q4. Government spending contracted 2.5% (Q4 2022: +0.5% s.a. qoq). Meanwhile, fixed investment growth improved to 1.3% in Q1, compared to the 0.3% increase in the prior quarter.
Exports of goods and services plunged at the steepest rate in over two years, contracting 8.1% in the first quarter (Q4 2022: -1.4% s.a. qoq). In addition, imports of goods and services slid at a steeper pace of 7.2% in Q1 (Q4 2022: -0.2% s.a. qoq).
The Consensus among our analysts is for the economy to contract in Q2. However, this will be partly due to fewer working days as a result of the King’s coronation, and underlying momentum will likely stay resilient, supported by the strong labor market. As ING’s James Smith comments:
“Recent figures have been thrown around by several one-off factors, ranging from the Queen’s funeral last year, to strikes and even some knock-on effect from the World Cup at the end of last year. That volatility will continue, given that the extra Bank Holiday this month for the Coronation will likely temporarily shave 0.5% off monthly GDP, only to be regained in June. While the impact of these additional holidays appears to have lessened compared to past decades, it’s probably enough to produce a 0.2% decline in overall second-quarter GDP.”