–Q1 Preliminary GDP +0.5% q/q; +1.8% y/y
–Q1 GDP in line with median forecast of +0.5% q/q

LONDON (MNI) – UK economic growth bounced back in the first quarter
of the year, although probably not by enough to prompt a rise in
interest rates as early as the May Monetary Policy Committee meeting.

Figures released Wednesday showed GDP rose 0.5% on the quarter in
Q1 and was up 1.8% on the year, in line with the median forecast from a
Market News survey.

The latest increase follows a 0.5% fall in output in Q4 last year,
meaning that output has not grown in the past two quarters and is now at
the same level seen in Q3 2010.

In its February Inflation Report the Bank of England forecast GDP
to rise an implied 0.8% on the quarter in Q1 and 2.4% on the year, and
these weaker figures will provide the doves on the committee with a
further reason to delay a hike in the Bank Rate.

Beneath the headline figure, however, the figures reveal core areas
of the economy growing healthily and bouncing back strongly from the
weather affected Q4 downturn.

Service sector output rose 0.9% on the quarter in Q1, the strongest
since Q4 2006, following a 0.6% fall in Q4. Growth was led by transport,
storage and communication output, as well as business services and
finance.

There was also strong growth in manufacturing where output rose
1.1% on the quarter and a 0.6% rise in agriculture.

GDP growth, though, was dragged lower by two sectors, construction
and utlities.

Construction output fell 4.7% on the quarter in Q1, the largest
quarterly fall since Q1 2009, following a 2.3% drop in Q4. National
Statistics said that data from January and February had shown strength
in new construction work, but weakness in repair and maintenance.

Output of the utilities insustries plunged 3.5% on the quarter in
Q1 as the weather returned to more normal levels following a spike in
gas and electricity usage in Q4.

Some economists have cast doubt over the quality and accuracy of
the construction data which have been erratic and don’t appear to tally
with other survey evidence.

The importance of the construction output shouldn’t be
underestimated as without the drag from this sector overall GDP growth
would have been 0.8% on the quarter and an even higher 0.9% stripping
out the weather related drop in utilities output.

–London newsroom: 44 20 7862 7492; e-mail:drobinson@marketnews.com

[TOPICS: MABDS$,M$B$$$,MT$$$$]