There is likely to be extra focus on the UK’s monthly GDP figures this time around. That’s because the Q4 GDP reading was preliminary, and could be revised. Recall that there was a surprise downturn in the final quarter of last year, which pushed the UK into a technical recession. But there have been significant revisions to the preliminary figures that have changed the outlook recently.
For example, around the same time the preliminary data showed that the UK fell into a recession, the Eurozone saw its Q3 GDP growth figure revised higher, allowing it to escape a technical recession. Just yesterday Japan saw its final Q4 GDP figure revised higher, bringing it out of a technical recession as well. The UK will report its final Q4 GDP measure on March 31, with a potential of a revision bringing it, too, out of a technical recession.
What the Data Could Show
In the meantime, tomorrow’s GDP release is for January, and includes a three-month rolling average. Investors are likely to be keenly interested in whether the data points to the potential of an upward revision at the end of the month (such as a revision of December data). Or, if that’s not the case, at least a rebound in the first quarter.
The consensus among analysts is that the data will show a return to modest growth. January monthly UK GDP is expected to bounce back to +0.1% from -0.1% prior. But, it might not be enough to drag the quarterly reading higher. The three-month average GDP growth rate is expected to stay negative at -0.1%, up from -0.3% prior.
What Happens to the BOE Outlook
Economists are back to forecasting that the BOE will get around to cutting rates in the third quarter. That had been the consensus opinion for most of last year, but softer figures last month prompted a brief change of expecting the cut in the second quarter. Meanwhile, markets are pricing in a majority chance of easing starting in August, which coincides with the economists’ views. That implies the BOE will be the last of the major central banks to start with easing.
One of the issues is the uneven situation in the UK economy. The industrial and manufacturing sectors have been under pressure, particularly due to higher input costs. But the services sector has been seeing upward growth, including tightness in the labor market and persistently high prices. That has dampened hopes that the BOE will start easing, even if the overall economy is under pressure.
The Other Data of Note
Around the same time, the UK is expected to report its trade balance, which is expected to show a slight narrowing of the deficit to -$2.3B from -$2.6B prior. Generally a smaller trade deficit is positive for the GDP growth figure. But its expected that it will be because of slower imports, suggesting a lack of economic dynamism.
Also at the same time, UK manufacturing production figures will be released. The expectation is that UK industry fell back into negative growth at -0.3% from 0.8% reported prior. But weaker manufacturing seems to be already priced in to the monetary policy forecasts.
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- Source: https://www.orbex.com/blog/en/2024/03/uk-gdp-can-a-rebound-change-boe-outlook
