United Kingdom: The economy picks up in May, with temporary factors providing support
July 10, 2018
According to new monthly GDP data released by the Office for National Statistics (ONS), the economy expanded 0.3% in May over the prior month in seasonally-adjusted terms. The figure was in line with market expectations and a smidgeon above April’s 0.2% expansion. In the March-May period, the economy expanded 0.2% over the previous rolling quarter (December-February).
May’s reading was driven by the dominant services sector—which accounts for around 80% of GDP—in particular the consumer-facing retail and wholesale sub-sector. A prolonged period of good weather undoubtedly boosted retail sales and flattered the sector’s performance. However, a gradual recovery in real wages could also have played a role. In contrast, the industrial sector declined on a contraction in mining and quarrying, which was itself driven by a shutdown at an oil and gas terminal. With the economy clearly regaining ground in Q2, and GDP growth for Q1 recently revised up to 0.2%, the Bank of England is now more likely to raise rates at its August meeting.
Beginning in July, the ONS is changing the way it reports economic growth. Along with monthly GDP estimates, the ONS will now only publish two quarterly GDP releases, rather than three, with the first release to be published around 40 days after the end of the quarter (compared to 25 days currently). The aim is to make the GDP by production data in the first release more precise.
UK GDP Forecast
The Central Bank downgraded its growth forecasts in May, and now expects the economy to expand 1.4% in 2018 and 1.7% in 2019. FocusEconomics panelists expect GDP to grow 1.4% in 2018 and 1.5% in 2019.
Author: Oliver Reynolds, Economist