Bank of England Governor Carney’s dovish turn on 20th April, UK macro data for March – including CPI-inflation, retail sales bank lending – Q1 GDP and more recently April PMI numbers have all progressively chipped away at the likelihood of the BoE delivering only its second rate hike in a decade next week. The services PMI, amongst the last key data before next week’s policy meeting, rebounded only modestly to 52.8 from 51.7 in March and seemingly arrested for now even a modest Sterling recovery.
Along with the small dip in manufacturing PMI this does not bode well for a rapid recovery in UK GDP growth in Q2. Even if growth rebounded to 0.4% qoq in Q2 (the average of the past two years), year-on-year growth would be only 1.4% and 1.3% in H1 2018. The IMF’s recently upgraded forecast of 1.6% growth for 2018 looks very ambitious, with GDP growth having to average an unlikely 0.6% qoq in Q2-Q4. A more realistic growth estimate would be 1.3-1.4% in 2018, which would be the low since 2009.
