UK GDP Review: Clearer Growth Momentum But Mainly Import Led?
The economy may have been in only mild recession in H2 last year, but the ‘recovery’ now evident is much clearer than any expected with GDP growth notably positive. Indeed, coming in more than expected, and despite industrial action, GDP rose by 0.4% m/m in March accentuating the upgraded bounce in the two previous months, a result that is a move away from of the monthly swings seen of late. The data resulted in a very clear end to the modest recession seen in H2 last year and also exceeded BoE thinking as Q1 growth jumped by 0.6%, an outcome dominated by a boost from net trade, mainly a sharp fall in imports, hardly indicative of firmer demand - perhaps the opposite. Regardless, it is clear that for the BoE it is price and cost data that are shaping policy thinking and these numbers alone will not defer any rate cutting that forthcoming CPI and wage data may create. Moreover, there are still areas of concern, with the latest BoE Agents survey pointing to weakness in consumer spending on goods and services in Q1 and as a result revising down their expectations of growth for 2024
Figure 1: Clearer Recovery – GDP Jumps but Consumer Still Fragile?
Source: ONS, CE
A Mixed Message?
Monthly real gross domestic product (GDP) is estimated to have grown by 0.4% in March 2024, following growth of 0.2% in February 2024 (revised up from 0.1%) and an unrevised growth of 0.3% in January 2024. Real gross domestic product is estimated to have grown by 0.6% in the three months to March 2024, compared with the three months to December 2023. On a quarterly basis, this gives growth of 0.6% in Q1, following declines of 0.3% in Quarter 4 (Oct to Dec) 2023 and 0.1% Quarter 3 (July to Sept) 2023. Services output grew by 0.5% in March 2024, following growth of 0.3% in February 2024 (revised up from 0.1% growth in our previous publication), and grew by 0.7% in the three months to March 2024; services output was the largest contributor to the growth in GDP on both the month and the three months to March 2024. Production output grew by 0.2% in March 2024, following growth of 1.0% in February 2024 (revised down from 1.1% in our previous publication), and grew by 0.8% in the three months to March 2024. Construction output fell by 0.4% in March 2024, following a fall of 2.0% in February 2024 (revised down from a 1.9% fall in our previous publication), and fell by 0.9% in the three months to March 2024.
Import volumes fell by 2.3% in the latest quarter, following a fall of 0.3% in Quarter 4 2023. The decline in the latest quarter was driven by a 2.9% fall in goods and 1.3% in services. This was the main factor behind the GDP jump in Q1
The fall in goods imports was driven by declines in machinery and transport equipment, in particular in imports of cars and mechanical power generators. The fall in services imports was mainly because of declines in insurance and pensions, and intellectual property services.