The second estimate of Q1 GDP confirmed the 0.3% Q/Q growth figure reported in the preliminary estimate. While this looks decent, the spending components are not very reassuring, as inventories made a very large contribution to GDP growth and as foreign trade continues to hold it back.
The outlook provided by leading indicators is mixed for the coming quarters, including a drop in April retail sales and an upturn in the May PMI survey. Meanwhile, the BoE said it was rather confident. When releasing its May Inflation Report , it raised its growth forecasts and lowered its inflation forecasts, something it had not done since February 2007.
Recent developments would not appear to point to upward revisions in growth forecasts. Several factors suggest that the global environment could be less healthy than assumed by the BoE, while domestic momentum will be driven mainly by investment, thanks to the various support measures that have been implemented.
While British GDP is likely to improve in coming quarters, growth will remain modest, due to weak consumption and exports, and there is still significant downside risk, both internationally (e.g., in the euro zone) and domestically (in consumer behavior).
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Natixis