UK: Focus on Q1 GDP – TDS

Analysts at TDS suggest that while not normally a big market mover (markets have already had a chance to digest most of the underlying data), today's 18Q1 UK GDP growth release will be of vital importance to the Bank of England as it meets to set policy in two weeks.

Key Quotes

“This heightened attention comes after Governor Carney last week said not to focus on the exact timing of the rate hike, and that Brexit uncertainty might still pose headwinds to the economy. While we still maintain our forecast of a rate hike in May in light of his comments, we do have a slightly lower conviction on the precise timing: we think it's about a 60% / 40% split between a May and August hike now rather than 80/20 prior.”

“We expect the "Beast from the East" to be a potentially important driver of the quarter's growth, but one that the MPC will confidently look through. Thus it is important to "add back" any drag from the storm when assessing the health of Q1 growth. We expect a drag of about 0.1 to 0.2ppt on growth, suggesting underlying growth closer to 0.5% q/q, almost perfectly in line with the BoE's February Inflation Report forecast.”

“Beyond the typical intraday volatility one might see around data releases, we would not usually expect a GDP reading to exert a particularly durable directional push on the pound.”

“In this case, however, the uncertainty surrounding the Q1 estimate offers more market-moving potential than usual as this 'stale' number could have significant implications for the nearterm future of UK monetary policy.”