Robust by historical standards but below market consensus – EY ITEM Club comments on today's GDP figures

29 April 2014

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  • GDP growth of 0.8% has left us a little deflated…
  • …but still robust by historical standards…
  • …and we expect the recovery to continue at a solid clip

Martin Beck, senior economic adviser to the EY ITEM Club, comments on today’s GDP figures: “Recent robust monthly indicators had raised our expectations for UK economic growth in Q1. But today’s GDP numbers, while impressive by historical standards, have left us a little deflated. GDP growth in Q1 came in slightly below the market consensus of 0.9% and the Bank of England’s expectation of 1%, while total output still remains below pre-crisis peak.

“But there is plenty of good news to take away from today’s numbers. The economy has now experienced five consecutive quarters of growth and there is the potential for Q1’s growth to see an upward revision. Meanwhile, the data points to a recovery that is broad based – Q1 saw output in services, industry and construction all expand in excess of 3% on an annual basis.

“That said, the risks have not gone away. Given the continued rapid growth in house prices, further expansion in GDP could become excessively dependent on the housing market. However we are expecting a long period of low inflation expansion which should keep interest rates on hold this year, supporting households’ incomes and spending. The pace of expansion should also give firms even more confidence to invest.

“So we are sticking to our view that the economy will expand by 2.9% in 2014 as a whole, with GDP overtaking its pre-crisis peak in the next quarter. A shift from economic recovery to expansion shouldn’t be too long coming.”