UK Economy Grows 0.7% in Q1 as Household Savings Drop - Business Update

Ruth Gregory, deputy chief UK economist at Capital Economics, warns that there is little underlying momentum in the economy, as more recent data suggests.

GDP growth was unrevised at 0.7% q/q in Q1, but we already know this strength has started to unwind. The underlying picture is still that there is very little momentum in the economy.

Growth was a bit less dependent on a likely one-off surge in business investment in Q1 than previously estimated. That was revised down, from 5.9% q/q to 3.9% q/q. What’s more, consumer spending growth was revised up a notch, from 0.2% q/q to 0.4% q/q.

And the news that the household saving rate fell from 12.0% in Q4 to 10.9% in Q1 provides some encouraging signs that consumer spending growth will edge higher in the quarters ahead.

That said, these minor tweaks to the shape of growth don’t change the big picture. Business investment and net trade remained the main drivers of growth. And given activity has been brought forward ahead of US tariffs and the leap in business investment reflects a one-off leap in spending on aircraft, these sources of growth won’t be sustained. Indeed, we already know that exports to the US fell by 31% m/m in April after they had risen by 34% in total in the five months to February.

Of course, all this backward-looking news is less important than the timely data which suggest GDP has done little more than flatline in Q2. The latest GDP figures do not change our view that the economy will grow by just 1.0% this year, which would be no better than last year and a little weaker than the consensus forecast.

According to the source: The Guardian.