'Bank of England hike is not a done deal': How economists reacted to May GDP recovery

 
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Improved services activity may have boosted the Bank of England's hawks (Source: Getty)

The UK economy grew by 0.2 per cent in the three months to May – and 0.3 per cent in the more volatile monthly figures – to give the Bank of England hawks looking for a recovery some solace.

However, the figures gave a mixed picture, with City economists still uncertain whether an interest rate hike is in the offing.

Read more: UK GDP growth recovers in May boost to Bank of England hawks

Today's data will be the last before the Bank's next monetary policy committee (MPC) meeting on 2 August.

Here's how economists reacted.

New data, same story

Tom Stevenson, an investment director at Fidelity International, said: “The first of a new-style monthly GDP report shows a continuation of an old-style economic story. Good weather and a royal wedding provided a boost to the services side of the economy in the three months to May but construction and manufacturing remain in the doldrums.

"The overall trend is yet to break out of the downward path it has traced since the beginning of 2017. There is nothing in today’s release to suggest that the Bank of England will be rushing to raise rates in August.”

Tipping the balance

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: The upturn in the new monthly measure of GDP in May is just strong enough to tip the balance in favour of the MPC likely raising Bank Rate at its next meeting on 2 August, provided the government doesn’t implode before then. The month-to-month increase in GDP in May was on the large side – 0.32 per cent to two decimal points – and the details were better than we expected.

"We still have concerns, however, that the economy will struggle to maintain the second quarter’s growth rate in the second half of this year. Spending in the retail and consumer services sectors in the second quarter has benefited from warmer-than-usual weather and deferred spending from the first quarter."

A rally, but underwhelming

Suren Thiru, Head of Economics at the British Chambers of Commerce, said: “The latest GDP data confirms that there was a modest rally in economic activity over recent months but coming after the marked slowdown in the first quarter there is further confirmation that UK growth remains underwhelming.

“While we still expect UK growth to have picked up in the second quarter as a whole, there remains little sign of a prolonged upswing in the UK’s growth trajectory. The current political and Brexit related uncertainty, as well as the failure to deal with longstanding issues such as weak productivity, are likely to weigh on economic activity over the near term.

“Against this subdued backdrop, the MPC should proceed with caution in tightening monetary policy, to avoid undermining consumer and business confidence."

Read more: Bank of England's rate hike rush criticised as growth outlook drags

Manufacturing boost well and truly faded

Lee Hopley, chief economist at EEF, the manufacturers’ organisation, said: “ONS have released a statistical bonanza and there’s little in it to suggest that the UK economy was a whole lot livelier in the three months to May compared with the start of the year. In the first monthly GDP release, growth was still sluggish, driven mainly be a slight pick-up in services and some weather related recovery in construction, but manufacturing output still was weighed down by the hefty contraction in April.

“A bit of digging into the industry detail confirms that the boost to manufacturing from accelerating export demand has well and truly faded and declining output in the metals sectors is a likely indication of the impact of protectionist actions facing some sectors."

Hardly a compelling case for a rate rise

Ian Stewart, chief economist at Deloitte, said: “The long awaited bounce back from a weak first quarter has failed to materialise, with the rolling three month growth rate unchanged into May. When we get the full picture for second quarter growth we’re likely to see a slight pick-up, as a result of stronger growth in retail, manufacturing and services in June.

"However the fact that first half growth is set to be below trend hardly makes a compelling case for an August rate rise.”

Tipping the balance

John Hawksworth, chief economist at PwC, said: "We estimate that growth in the second quarter will end up at around 0.4 per cent, given signs from business surveys of continued forward momentum in services and construction in June.

"This pick-up in growth could be enough to tip the majority of the MPC towards a rate rise in August, though this is not yet a done deal given continuing uncertainties over Brexit and rising global trade tensions."

Read more: Sterling jumps after Carney expresses 'greater confidence' in UK economy

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