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UK GDP Revised - analyst reaction

Britain's economy made a sluggish start to the year as household spending saw its sharpest quarterly fall in almost two years, data showed on Wednesday. Here, is what a few top analysts said about the figures.

Chris Williamson, Markit
"Manufacturing and services grew at decent rates, highlighting the broad-based nature of the revival, and the improvement in exports is very reassuring.

"However, it must be remembered that this is largely a result of the weak pound and strong growth in overseas markets in the first three months of the year, rather than any deliberate policy initiatives aimed at rebalancing the economy. Continuing growth in exports is therefore by no means assured and depends to a large extent on global economic growth, which has shown signs of moderating - especially in the eurozone, which is the UK's largest export market.

"The consumer remains the weakest link - confirming the rather dismal picture of household moral portrayed by recent surveys. The ongoing downbeat mood among households in the second quarter, added to the slower growth of demand in export markets, suggests that economic growth will remain subdued at best."

Vicky Redwood, Capital Economics
"The lack of any upward revision to UK GDP in Q1 leaves the economic recovery earlier this year still looking disappointingly weak. What's more, the breakdown shows that only a huge boost from net trade allowed the economy to expand at all.
"But the 0.6pc quarterly drop in consumer spending and whopping 7.1pc fall in business investment are clearly concerning. Of course, the economy has needed to re-balance for a long time. But we doubt that net trade will continue to provide such a strong contribution to growth, especially with signs of fragility in the global recovery.

"Admittedly, these figures are quite out of date now and we know that high street spending has picked up since Q1. But there is little other evidence that the recovery has significantly picked up speed. We still think that the economy will struggle to meet even our forecast of just 1.5pc growth this year."
Ross Walker, RBS

"The expenditure components look exaggerated in terms of the print. And I wouldn't be wholly surprised to see those components rebalance or converge a little bit in subsequent data. The overall number is what the market cares most about and I suspect that the breakdown will be viewed with a degree of scepticism. I think the risks are that some of that gets trimmed down [revised]."

Hetal Mehta, Daiwa Capital Markets Europe
"These GDP figures are bittersweet. The positive contribution from net trade has been a long time coming, but the fall in investment is a blow to hopes that this would be the other pillar of growth. Instead, surprisingly, government spending continued to support the economy - perhaps the last hurrah before the spending cuts kick in.

"Most shocking, however, is perhaps the scale of the fall in consumer spending. Following the contraction in Q4, these figures underline the significant weakness in the consumer sector. And, given the recent comments from the Bank of England that unexpected weakness in consumer demand would mean a slower pick-up in interest rates than markets have priced in, we believe these figures reinforce our view that the majority of the MPC will continue to vote for no change in interest rates this year."

Source : The

25 May 2011
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