GDP (Q4, First Estimate) - Capital Economics
UK Economics

GDP (Q4, First Estimate)

UK Data Response
Written by Ruth Gregory

While the first estimate of Q4 GDP showed that the economy stagnated at the end of last year, this is old news and less important than the timelier data that suggests the economy has since turned a corner.

Stagnation in Q4, but Q1 will be better

  • While the first estimate of Q4 GDP showed that the economy stagnated at the end of last year, this is old news and less important than the timelier data that suggests the economy has since turned a corner.
  • The GDP figures were not quite as bad as we had feared in Q4. The stagnation in GDP beat our forecast of a 0.1% q/q fall. Encouragingly, overall household consumption managed to eek out a small rise of 0.1% q/q, suggesting that growth in spending off the high street compensated for the 0.9% quarterly fall in retail sales. Meanwhile, Q3’s quarterly GDP estimate was revised up from 0.4% to 0.5% q/q. As a result, GDP grew by 1.4% in 2019. That beat 2018’s 1.3% increase and the likely 1.2% gain in the euro-zone.
  • Admittedly, the annual rate of GDP growth still fell from 1.2% to 1.1% in Q4, its lowest since Q1 2018. (See Table 1.) And the expenditure breakdown painted a downbeat picture, showing that business investment and net trade (excluding non-monetary gold) subtracted 0.1ppts and 0.3ppts from GDP growth respectively. The only real strength came from government spending, which added 0.4ppts.
  • But all this backward-looking news is far less important than the timelier data which suggest that the economy has returned to growth in Q1. By reducing political uncertainty and ruling out a no deal Brexit on 31st January 2020, December’s election result marked a decisive turning point for the economy. The post-election data, including the activity PMIs, Deloitte’s CFO survey, the BRC Retail Sales Monitor, the CBI Distributive Trades Survey and indicators of housing activity, have all been overwhelmingly positive.
  • The monthly GDP figures suggest that this may have started to show up in December too, with GDP rising by 0.3% m/m. (See Chart 1.) For the first time in seven months, output in the services (0.3% m/m), industrial (0.1% m/m) and construction (0.4% m/m) sectors all rose.
  • Overall, with the economy having turned a corner and a further fiscal boost in store in the Budget on 11th March, we think that GDP growth will beat the consensus forecast by accelerating from 1.0% this year to 1.8% next year.

Chart 1: Real GDP

Sources: Refinitiv, Capital Economics

Table 1: GDP by Expenditure (Components of GDP, % q/q Unless Stated)

Household Spending

Government Spending

Fix. Capital Formation

Stockbuilding1 (Cont. to Growth)

Domestic Demand

Imports

Exports

GDP

GDP (%y/y)

Q1 19

0.3

0.6

1.1

1.1

3.5

9.2

1.1

0.6

2.0

Q2 19

0.5

1.3

-0.5

-1.2

-2.7

-10.7

-3.0

-0.1

1.3

Q3 19

0.4

0.3

0.3

-1.0

-0.9

1.2

5.9

0.5

1.2

Q4 19

0.1

2.1

-1.6

0.5

-1.5

-0.8

4.1

0.0

1.1

Sources: Refinitiv, Capital Economics 1Excluding alignment adjustment


Ruth Gregory, Senior UK Economist, +44 20 7811 3913, ruth.gregory@capitaleconomics.com