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United Kingdom GDP Q1 2022

United Kingdom: GDP grows at softest pace since Q1 2021 in Q1

Economic growth moderated in the first quarter, with GDP increasing 0.8% on a seasonally-adjusted quarter-on-quarter basis (Q4 2021: +1.3% s.a. qoq). Q1’s reading marked the softest growth since Q1 2021, but was still notably stronger than G7 peers.

Private consumption increased 0.4% in the first quarter, which was below the fourth quarter’s 0.5% expansion. The slowdown was driven by a contraction in spending by non-profit institutions, as household spending growth accelerated amid the removal of lockdown restrictions and a tighter labor market. Government spending deteriorated, contracting 1.7% in Q1 (Q4 2021: +1.5% s.a. qoq) as pandemic-related health spending declined. Meanwhile, fixed investment growth picked up to 5.4% in Q1, from the 1.1% expansion in the previous quarter. This was driven by a rise in public investment, as business investment fell to 9.1% below its pre-Covid peak.

Exports of goods and services contracted 4.9% in Q1, marking the worst result since Q1 2021 (Q4 2021: +6.9% s.a. qoq), on lower exports of goods, financial services and communications services. Conversely, imports of goods and services growth sped up to 9.3% in Q1 (Q4 2021: +0.3% s.a. qoq).

On an annual basis, economic growth gathered steam, rising to 8.7% in Q1, compared to the previous period’s 6.6% expansion.

While the overall Q1 expansion was robust, monthly data shows the economy only grew in January, before flatlining in February and contracting 0.1% in March as inflation surged and consumer sentiment softened. Turning to Q2, we forecast the economy to broadly stagnate as cost-of-living concerns weigh on spending intentions.

Commenting on the short-term outlook, ING’s James Smith was downbeat:

“Surprisingly, health output actually increased in March despite the ongoing wind-down of Covid-related activities, but clearly, that’s unlikely to last. Health spending has been a key driver of GDP through the pandemic, and in fact, the overall size of the economy would be around 1% smaller had output in this sector stayed flat since early-2020. Throw in the distortion of the extra bank holiday scheduled for June, as well as the ongoing impact of the consumer spending squeeze, and we’re likely to see a modestly negative GDP figure for the second quarter as a whole.”

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