“The sun is finally out but the UK economy outlook remains foggy” says Yael Selfin, Chief Economist at KPMG UK.
“Despite weaker momentum in February, the economy’s ongoing recovery is the latest piece of evidence that the shallow technical recession is already behind us. Growth was helped by the January cut in National Insurance, a further boost to purchasing power from falling inflation, and an easing in cost pressures for businesses. Combined with more timely survey data, we expect GDP to grow at around 0.3% over Q1.
“Nonetheless, there are limits to the UK’s growth potential this year. Consumer spending remains fragile. Business investment could be dented by uncertainty related to the general election and growing speculation around a second fiscal event in the Autumn, while weakness in the housing market could further drag on construction by lowering the return on new housebuilding.
“Overall, we don’t expect today’s data to have a material impact on the Bank of England’s policy, which has recently put more weight on nominal indicators such as pay growth and inflation to calibrate the appropriate interest rate level. While our main expectation is for the first cut in interest rates to happen in June, a late-summer consensus remains a valid possibility.”
