UK data disappointments curtail GBP upside, GDP reviewed - Nomura

Analysts at Nomura noted the UK's soft GDP print but said it is largely because of one sector.

Key Quotes:

"The economy grew at just 0.1% q-o-q in Q1 2018, its weakest rate since the end of 2012. This was also outside the range of economists’ estimates – the low point of those being 0.2% in Bloomberg’s week-ahead poll. What’s worse is that less of the weakness seems to be related to temporary factors, with the ONS saying inclement weather had only a modest effect."

"To be fair, the detail of this report was not excessively weak across the board. Rather, it was a single sector – that of construction, worth about 6% of GDP – that did most of the damage, with output falling by 3.3% during the quarter (and more than 2% in the month of March). That, by itself, was sufficient to take 0.2pp off the quarterly rate of GDP. Elsewhere, industrial production (IP) performed well, growing by 0.7% during the quarter. This marks a year and a half of no decline in this sector’s output, which has been in no small part the result of strong global growth and past falls in the currency."

"Admittedly, however, much of the rise in IP was due to mining (the reopening of the Forties pipeline helped here) and energy (boosted by colder weather). Underlying manufacturing output growth – which strips those volatile energy components out – actually slowed to just 0.2% q-o-q, far below the 1%+ rates of growth in H2 2017. Services is by far the largest sector of the economy (80% of total output) and one that – going into this GDP release – we had little advance detail about (the monthly index of services was only available for the month of January before today)."

"So the news on services was always going to be the most important part of today’s release. And it is worth noting that while growth of 0.3% q-o-q is not exactly strong, nor is it excessively weak. After all, it is no different to the quarterly average rate of services growth in 2017 as a whole. This very modest growth was not enough, however, to save the economy from the collapse in construction output and a weaker manufacturing sector."