Upgrade to UK growth may prompt interest rate rise


Britain’s economy grew slightly more than previously thought in the first three months of the year.

Gross Domestic Product (GDP) has been revised up from 0.1% in an earlier estimate to 0.2%, according to the Office for National Statistics (ONS).

During the first quarter of 2018, unusually cold weather hit Britain and the ONS also blamed the weak growth on a fall in business investment and inflation.

The revision upwards in growth came after output from Britain’s construction sector was higher than previously estimated.

ONS spokesman Rob Kent-Smith said: “GDP growth was revised up slightly in the first three months of 2018, with later construction data, and significantly improved methods for measuring the sector, nudging up growth.

“These improved methods, introduced as part of ONS’s annual update to its figures, will lead to better early estimates of the construction sector with smaller revisions in the future.

“Overall, households were borrowers at the beginning of 2018 and for the sixth consecutive quarter, as households continued to face increasing prices, squeezing their budgets.

“Investment by both local and central government and the private sector fell, with spending on buildings, machinery and software all seeing notable falls.”

The Bank of England's Monetary Policy Committee has hiked interest rates
Image: The revised growth upwards may lead to an interest rate rise by the Bank of England

The final reading means growth still halved from 0.4% in the final quarter of 2017, but the slightly better data is likely to raise the prospect of an interest rate hike by the Bank of England.

The BoE believes the initial data was a blip and the economy is bouncing back from the unusually cold weather in late February and early March.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The MPC (Monetary Policy Committee) likely will feel a little vindicated by the upward revision to Q1 GDP.

“But the growth rate still lags behind the Committee’s assessment of its trend, 0.4%, and the rate it thinks the economy grew at in Q1, 0.3%.”

Howard Archer, chief economic advisor at EY ITEM Club, said the upward revision to GDP, as well as the recent evidence of a pick-up in retail sales in the second quarter, “fuels our belief that the MPC is more likely than not to hike interest rates from 0.50% to 0.75% at their August meeting”.

“There is likely to be only one interest rate hike in 2018, leaving interest rates at 0.75% at the end of the year.

“We expect the Bank of England to raise interest rates twice in 2019 taking them up to 1.25% as it looks to gradually normalise monetary policy.”

More from Business

The pound rallied sharply to $1.3170, up 0.7%. It had fallen to a seven-and-a -half month low earlier in the week amid concerns little progress was being made on Brexit negotiations.

Britain’s service sector, which makes up four-fifths of the economy, rose by 0.3% on the month in April, its fastest growth since November 2017. the ONS said.

From – SkyNews


Comments are closed.