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UK GDP Growth Improves In Q1 On Pre-Brexit Stockpiling


The UK economy grew at a faster pace in the first three months of the year, in line with economists' expectations, led by a pick up in manufacturing and business investment that took place ahead of the original Brexit deadline towards the end of March.

Gross domestic product grew 0.5 percent from the final three months of 2018, when it rose 0.2 percent, preliminary estimates from the Office for National Statistics showed on Friday.

The Bank of England and economists had also predicted the same pace of expansion. In the third quarter, growth was 0.7 percent.

"The strength in quarterly growth is in part due to the low December 2018 monthly growth in the base period, which makes the current period look stronger in comparison," the ONS said.

On a month-on-month basis, GDP decreased 0.1 percent in March after a 0.2 percent gain in February. Economists had forecast stagnation for March. In January, GDP rose 0.5 percent.

In the first quarter, GDP grew 1.8 percent year-on-year, which was the fastest pace since the July to September quarter of 2017, the ONS said.

Production grew 1.4 percent quarterly in the first quarter and manufacturing output increased 2.2 percent, which was the fastest pace since the third quarter of 1988.

Factory growth was driven by pharmaceuticals, food products and basic metals, while electricity contracted for the fifth month in a row.

Further, the ONS noted that the strong growth was consistent with the increase in manufacturing activity ahead of the original Brexit deadline of March 29, as indicated by recent purchasing managers' surveys. Stock-building of both raw materials and finished goods peaked during this time.

Growth in services output slowed to 0.3 percent. The expansion was driven by retail and information and communication sectors.

Construction output rose 1 percent and the farm, forestry and fishing sector production shrunk 1.8 percent.

On the expenditure side, private consumption, government consumption and gross capital formation contributed positively to growth, while net trade subtracted from GDP growth.

Household consumption grew 0.7 percent quarterly following a 0.3 percent increase in the previous three months. The growth was the fastest since the first quarter of 2017. Economists had forecast a 0.5 percent increase.

Public spending grew 1.4 percent following a 1.3 percent increase in the previous quarter. Economists had forecast just 0.4 percent gain.

Gross fixed capital formation rose 2.1 percent quarterly following a 0.6 percent contraction in the previous three months. By contrast, economists had expected a further decline of 0.4 percent.

Following four quarters of contraction, business investment grew 0.5 percent in the first three months of the year. Economists had expected the declining trend to continue with a fall of 0.7 percent.

On a year-on-year basis, business investment decreased 1.4 percent following a 2.5 percent fall in the fourth quarter. Economists had forecast a 2.7 percent slump.

Exports were flat sequentially in the first quarter after a 1.6 percent gain in the previous three months. Economists were looking for a 1.7 percent gain.

Imports rose 6.8 percent after a 2.1 percent increase in the fourth quarter. Economists had expected a 4.5 percent upside.

"Some activity may have been brought forward in Q1 in other areas such as government consumption and government investment, so the pleasant news in Q1 might be followed by a bit of a hangover in Q2," Capital Economics economist Ruth Gregory said.

"Given the Brexit paralysis, there is a real risk that business investment declines further over the coming quarters."

The deadline for the UK to leave the European Union has now been extended to October 31 as the Theresa May government failed to secure lawmakers' approval for a Brexit deal.

Capital Economics still expects growth to moderate in the second quarter and remain pretty sluggish for the rest of the year.

Last week, the Bank of England forecast the quarterly growth rate to slow to 0.2 percent in the second quarter. The central bank also raised the growth forecast this year to 1.5 percent from 1.2 percent.

As global growth stabilizes around its potential rate and Brexit uncertainties subside gradually, GDP growth will start to pick up next year and climb above 2 percent by the end of the forecast period, the bank said.

Separately, the ONS released the monthly data for industrial production, construction, services and foreign trade.

Industrial production grew 0.7 percent from February, when it rose 0.6 percent. Meanwhile, economists had forecast stagnation.

Manufacturing output increased 0.9 percent after a 1 percent increase in February. Economists were looking for a 1.1 percent gain. Factory output expanded for the third successive quarter, the first such instance since October-December 2017.

Construction output decreased 1.9 percent following a 0.5 percent increase in the previous month. The fall was worse than the 0.9 percent slump economists had predicted.

Output in the services sector shrunk 0.1 percent monthly in March following a 0.2 percent gain in the previous month. Economists had expected a 0.1 percent gain. The largest negative contributor to this was the information and communication sector, driven by computer programming.

In March, the visible trade deficit narrowed to GBP 13.650 billion from GBP 14.434 billion in February. Economists had forecast a shortfall of GBP 13.750 billion.

The total trade deficit fell to GBP 5.408 billion from GBP 6.219 billion. Economists had expected a deficit of GBP 4.600 billion.

The surplus in services trade grew to GBP 8.242 billion from GBP 8.215 billion.

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