UK growth accelerates, but no interest rates rise expected – Schroders’ Zangana

We expect the economy to maintain a strong pace of growth, says Schroders European Economist, Azad Zangana commenting on the latest preliminary estimate of UK GDP growth.

The latest preliminary estimate of UK GDP shows economic growth accelerated from 0.7% growth in the last three months of 2013 to 0.8% in the first quarter – a strong and promising start to 2014, but the estimate has fallen short of the city’s consensus estimate which was 0.9%.

Quarterly year-on-year growth is now up to 3.1% – the fastest rate of annual growth since fourth quarter of 2007.The level of GDP is now just 0.6% below its previous peak in Q1 2008.

Within the details, the services sectors were the main drivers of the headline figures, growing by 0.9% on the quarter. The production industries grew by a solid 0.8%, but the construction sector only managed 0.3% while the small agricultural sector declined by 0.7%. The latter two being hit by the flooding in February, but should bounce back in the near future.

Overall, these are good results for the UK economy and they confirm that the UK is one of the fastest growing economies in the advanced world. Looking ahead, we expect the economy to maintain a strong pace of growth, driven by loose credit conditions, low interest rates, and easing fiscal austerity.

The rebound in the housing market is helping to boost household spending, while companies appear to be gaining in confidence and so are starting to increase levels of investment.

Taken together with the recent good news in the labour market, we could see the more hawkish members on the Bank of England’s Monetary Policy Committee suddenly find their voices, and begin to talk about raising interest rates.

We continue to expect no change in interest rates this year, however, if the momentum in activity continues at this pace, there is a big risk the first interest rate rise comes in 2015.

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