CAPITAL ECONOMICS:
With the election just days away, the news that the UK'€™s economic recovery slowed sharply in the first quarter clearly won'€™t help the coalition parties, but this slowdown should just be temporary. The preliminary estimate of a 0.3% quarterly rise in GDP in Q1 was weaker than the consensus forecast of a 0.5% rise (and even our forecast of a 0.4% increase). Construction output fell by 1.6% q/q, while manufacturing output rose by just 0.1%. And although services output rose by 0.5%, this was much weaker than Q4's 0.9% rise.
Nonetheless, we doubt that the recovery is on the cusp of a sustained slowdown. Households'€™ real incomes are still on track for their strongest growth this year since 2006. And the business surveys remain upbeat and consistent with quarterly GDP growth returning to 0.7% or 0.8% quarterly rates soon. Indeed, Q1’s figure could eventually be revised up to these sorts of rates (although obviously not in time to help the incumbent government). We still think that the economy will grow by close to 3% this year as a whole.