10 May 2018

Update

Q1 GDP growth hit by poor weather

The UK economy grew by 0.1% in the three months to March, the weakest quarterly growth rate since 2012. Looking ahead, data continues to point to sluggish growth at the start of Q2, but we think the gloom may be overdone.

Q1 GDP growth hit by poor weather

The first estimate of UK GDP growth for Q1 indicated that the economy grew at 0.1% in the three months to March. This reading came in significantly lower than the CBI’s and consensus expectations of 0.3% and marked the weakest rate of growth since 2012.

The CBI’s surveys, member anecdote and ONS commentary suggest that the poor weather in Q1 is likely to have pushed down growth. Construction and retail were particularly affected by the colder conditions. Excluding weather effects, growth is likely to have been in the range of 0.3-0.4%.

The softer Q1 data has led many to question whether the UK economy may be entering a more sustained slowdown with many looking to Q2 data to shed some light. The CBI’s growth indicator suggests that growth was negligible at the start of Q2, as consumer services volumes declined, alongside unchanged distribution volumes. In the quarter to July, growth is expected to pick-up, with an acceleration in growth expected across-the-board.

While Markit’s latest composite PMI rebounded only slightly in April, remaining close to its weakest level for a year-and-a-half. Nevertheless, the readings are still consistent with growth of around 0.3% - broadly in line with the CBI’s economic forecast for quarterly growth.

The Markit services PMI picked up slightly in April (52.8) following March’s 20-month low (51.7), but still stood at the second-weakest level since September 2016. The manufacturing PMI slipped to a 17 month low (53.9), mirroring the CBI’s Industrial Trends Survey which also indicated slower manufacturing growth. Meanwhile, the construction PMI indicated a moderate recovery in output following the weather disruptions in March. Construction was a key sector dragging down economic growth in Q1 and a rebound in April raises the possibility that the sector will make a positive contribution to growth in Q2.

Finally, the CBI’s SME Trends survey indicated that small and medium-sized manufacturers are continuing to benefit from the lower value of the pound and strong global demand, with export orders growth the strongest on record. However, UK demand was less positive with domestic orders unchanged in the three months to April. Output continued to rise firmly, with expectations for next quarter also pointing to a decent pace of growth. Capacity pressures remained high, with the number of firms citing plant capacity as a factor likely to limit output rising to its highest on record (since October 1988). Concern over skills and labour shortages also remained elevated, albeit receding from the highs seen in recent surveys.

For more information contact Charlotte.Dendy@cbi.org.uk