April's economic standstill masks brighter prospects for UK growth

(Alliance News) - Despite flatlining in April, prospects for economic growth in the UK are looking brighter, economists on Wednesday said.

UK gross domestic product was flat in April from March, in line with FXStreet-cited market consensus. In March from February, GDP had increased by 0.4%, according to revised data from the Office for National Statistics.

The ONS also said that industrial production fell by 0.9% on-month in April, worse than expectations of a 0.1% fall. Production had risen by 0.2% in March from February.

On an annual basis, industrial production fell by 0.4% in April, having risen by 0.5% the month earlier.

"It may be hard to pick out much in the way of a trend from the UK GDP figures right now at an industry level, but the economy does seem to have built up steam so far this year," ING said.

"We expect 0.4% to 0.5% GDP growth in the second quarter," the broker added.

ING said the details were "mixed" and "the truth is that it’s hard to pick out any clear trends from particular industries so far this year."

Production and construction were both "eye-catchingly bad" in April, though these are "volatile and it’s quite possible a lot of this is weather-related."

"Fortunately, the service sector is looking decidedly better this year, and that accounts for 80% of economic activity in the UK," ING added.

"When you aggregate it up, it’s clear that UK growth is improving," ING remarked.

Pantheon Macroeconomics Chief UK Economist Rob Wood said flat GDP in April was "better than expected" and leaves the UK economy on track to grow by 0.4% quarter-to-quarter in the second quarter as a whole.

He expects GDP to return to growth in May as retail sales and construction "get some relief from the incessant rainfall."

He pointed out GDP would grow 0.3% quarter-to-quarter in the second quarter if output just holds flat in May and June. Growth of 0.1% month-to-month in May and June would deliver a 0.4% quarter-to-quarter rise in GDP, he added.

That would comfortably exceed the Monetary Policy Committee's 0.2% forecast, Wood noted.

Wood felt GDP holding flat was a "result" after the strong run growth rates the UK has seen since the new year.

"The picture of a broad-based recovery from last year's minor recession remains intact with only the rain-disrupted construction sector failing to grow three-months-on-three-months in April," Wood remarked.

But Wood does think the data further complicates the MPC’s upcoming interest rate decisions.

"Rate setters will keep rates on hold in June, but now a cut in August looks a little less likely," he suggested.

"Decent GDP growth is boosting survey measures of employment growth, which could slow labour market easing and give any wavering rate setters a reason to wait and see in August too. We stick with our forecast for a rate cut in August, but it's becoming a closer call."

Deutsche Bank also thinks April's flat print will prove temporary.

"To be sure, a cyclical recovery is underway. A firming in real disposable incomes will likely give way to firming household consumption. An early election will give way to more fiscal certainty with some fiscal easing inevitable following the general election."

"We continue to think that GDP will expand by 0.8% this year, but risks are skewed higher, particularly given the resilience in the services sector," Deutsche said.

By Jeremy Cutler, Alliance News reporter

Comments and questions to [email protected]

Copyright 2024 Alliance News Ltd. All Rights Reserved.