UK GDP Preview: First-quarter slower growth is all forgotten as BoE turns hawkish

• The first quarter UK GDP is expected to rise 0.1% over the quarter and 1.2% over the year.
• The Bank of England chief economist Andy Haldane justified his hawkish vote in June MPC meeting by saying that the UK consumer data has virtually without exception bounced back since May Monetary Policy Committee (MPC) meeting.
• The hawkish twist of MPC voting 6-3 to keep the Bank rate unchanged belittle the significance of final first-quarter GDP revision as things look brighter now.

The first quarter UK gross domestic product (GDP) is expected to increase 0.1% over the fourth quarter of 2017 while rising 1.2% over the first quarter of the previous year, the figures from the UK Office for National Statistics (ONS) are set to show on Friday, June 29.

The final revision of the UK GDP is unlikely to see any boost for the economic growth in the UK that is, in fact, the slowest among G7 industrialized countries. Nevertheless, these figures are unlikely to mean that much for the policymakers at the Bank of England, who already said two weeks ago that the first-quarter GDP slowdown was mostly the adverse-weather related blip and actually the group of policymakers voting in favor of the interest rate hike rose from two to three, shocking the markets.

While Ian McCafferty and Michael Sauders, both external MPC members are traditional hawks voting in favor of a rate hike in the UK since March 22 this year, during the June MPC meeting the Bank of England chief economist Andy Haldane joined in and voted in favor of a rate hike as well. 

The hawkish twist at the Bank of England MPC caught markets by surprise and saved Sterling that was trading at the brink of 1.3100 to trade above 1.3300 the day after the decision.

Andy Haldane justified for his move the day before the final revision of the UK GDP by saying that the UK consumer data has virtually without exception bounced back since May Monetary Policy Committee (MPC) meeting.

That means that no matter what numbers the ONS will come up with, it is the growth and the interest rate outlook is already what the market is counting with. And the growth outlook is slightly better than the first quarter's 0.4% Q/Q and 1.2% y/y. With The Bank of England chief economist swinging into the camp of hawks the growth outlook has to be brighter. The tight UK labor market and nominal wage growth above that of inflation all support the brighter growth outlook compared to the first-quarter slowdown.