Moderate rebound for growth likely in Q2
The ONS’ first ever monthly GDP release showed a slight improvement in growth in May, but the pace of expansion remained relatively weak. With surveys suggesting that activity held up in June, real GDP growth is on track to rebound moderately in Q2 following a weak Q1.
The ONS released its first measure of monthly GDP for May, which showed a mixed picture of the UK economy. GDP accelerated to 0.3% month on month in May, (compared with 0.2% in April and no growth in March), pointing to a slight rebound in activity through the latest quarter, following weak growth in Q1. However, growth was relatively unbalanced by sector, driven entirely by the services sector, partly offset by falling construction and industrial output.
Within services, growth was broad-based: and notably strong in distribution (retail, wholesale and motor trades), likely due to a boost from the warmer weather and the royal wedding.
Industrial production, meanwhile, was a drag on growth in the three months to May. Output in manufacturing and electricity, gas, steam and air conditioning fell, which was more than enough to offset growth in mining & quarrying and water supply, sewerage & waste management.
Monthly output growth in construction improved significantly in May alone (2.9%), following a broadly negative start to 2018. Nonetheless, on a quarter on quarter basis (which smooths out monthly volatility), output fell for the seventh consecutive month, the longest negative streak since 2012.
Recent survey data also supported the notion that the UK will see a moderate pick-up in growth in Q2. The latest IHS Markit/CIPS composite PMI was up on Q2 as a whole, driven by a pick-up in construction and particularly services. The manufacturing PMI signalled that growth remained relatively subdued compared to stronger growth at the turn of the year. The composite PMI currently points to GDP growth of 0.4% in Q2, in line with the CBI’s growth indicator.
Meanwhile, labour productivity fell by 0.4% on the quarter in Q1 2018, continuing the weak trend in productivity observed since the Great Recession. This drop was driven by low output growth (presumably due to bad weather) against another strong expansion in average hours worked.
For more information contact Charlotte.Dendy@cbi.org.uk