Danske Research Team
Danske Bank A/S
The Office of National Statistics just released the first estimate of UK Q4 GDP growth. The figures show that the UK economy expanded by 0.5 % q/q (2.7 % y/y). It is not a surprise that growth has slowed down as the key economic figures in Q4 were weaker compared to Q3. That said, we had expected a slightly higher growth of 0.6% q/q.
As we now know the economic development in the UK throughout 2014, we can now conclude that the UK economy expanded by 2.6 % in 2014 compared to 2013. This is the highest in seven years.
The service sector (78.4% of GDP) is still the main contributor to growth and contributed by 0.62 percentage points to the quarterly GDP growth in Q4. Thus it is still mainly domestic demand that drives growth. Industrial production contributed negatively by 0.02 percentage points and is still below pre-crisis levels. The weak production is mainly the result of the weak development in Europe in general, which weighs on the demand for British manufacturing goods. Construction contributed by - 0.1% percentage points.
We expect that the UK economy will continue to perform well this year as it got tailwinds from several directions. Firstly, British workers are experiencing positive real wage growth for the first time since 2009 due to a combination of low inflation and increasing nominal wage growth, which should support private consumption. Secondly, the lower oil price will boost growth in both the US and Europe, which should increase foreign demand for British goods.
The continued progress in the UK will lead to a further tightening in the labour market, which should be reflected in the wage formation. Hence, we expect that Bank of England (BoE) will hike the Bank Rate in Q3 this year. However, the low inflation, mainly due to lower commodity and food prices, is a downside risk to this forecast, as this gives the BoE the opportunity to stay patient.
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks
EUR/USD clings to gains above 1.0750 after US data
EUR/USD manages to hold in positive territory above 1.0750 despite retreating from the fresh multi-week high it set above 1.0800 earlier in the day. The US Dollar struggles to find demand following the weaker-than-expected NFP data.
GBP/USD declines below 1.2550 following NFP-inspired upsurge
GBP/USD struggles to preserve its bullish momentum and trades below 1.2550 in the American session. Earlier in the day, the disappointing April jobs report from the US triggered a USD selloff and allowed the pair to reach multi-week highs above 1.2600.
Gold struggles to hold above $2,300 despite falling US yields
Gold stays on the back foot below $2,300 in the American session on Friday. The benchmark 10-year US Treasury bond yield stays in negative territory below 4.6% after weak US data but the improving risk mood doesn't allow XAU/USD to gain traction.
Bitcoin Weekly Forecast: Should you buy BTC here? Premium
Bitcoin (BTC) price shows signs of a potential reversal but lacks confirmation, which has divided the investor community into two – those who are buying the dips and those who are expecting a further correction.
Week ahead – BoE and RBA decisions headline a calm week
Bank of England meets on Thursday, unlikely to signal rate cuts. Reserve Bank of Australia could maintain a higher-for-longer stance. Elsewhere, Bank of Japan releases summary of opinions.