27 Apr 2016
UK: 1Q GDP grows by 0.4%, Brexit threat to weigh on 2Q16 - ING
James Knightley, Research Analyst at ING, notes that the UK 1Q GDP growth has come in at +0.4%QoQ, in line with market expectations, but down from 0.6%QoQ recorded in 4Q15.
Key Quotes
“The YoY rate of growth remains at 2.1%. At this stage we only get an industrial breakdown with service sector output rising 0.6%QoQ, production industries falling 0.4% and construction contracting 0.9%.
We suspect that 2Q GDP growth will be even weaker given the threat of Brexit is negatively impacting business sentiment, leading to a reduction in risks appetite regarding hiring and investment decisions. Indeed, unemployment actually rose in the three months to February while consumer confidence is also coming under pressure.
This loss of momentum means that the Bank of England is likely to retain a dovish bias in the build-up to the EU referendum. Should the UK vote to stay a member of the EU then we suspect that activity will bounce back in 3Q and 4Q16, helped by a weaker currency and a recovery in sentiment.
We therefore suggest that a November rate hike remains possible. However, should the UK vote to leave then sentiment and activity could weaken substantially and lead the BoE to seriously consider significant policy loosening.”
Key Quotes
“The YoY rate of growth remains at 2.1%. At this stage we only get an industrial breakdown with service sector output rising 0.6%QoQ, production industries falling 0.4% and construction contracting 0.9%.
We suspect that 2Q GDP growth will be even weaker given the threat of Brexit is negatively impacting business sentiment, leading to a reduction in risks appetite regarding hiring and investment decisions. Indeed, unemployment actually rose in the three months to February while consumer confidence is also coming under pressure.
This loss of momentum means that the Bank of England is likely to retain a dovish bias in the build-up to the EU referendum. Should the UK vote to stay a member of the EU then we suspect that activity will bounce back in 3Q and 4Q16, helped by a weaker currency and a recovery in sentiment.
We therefore suggest that a November rate hike remains possible. However, should the UK vote to leave then sentiment and activity could weaken substantially and lead the BoE to seriously consider significant policy loosening.”