UK Q3 GDP: Growth remains sluggish - Wells Fargo

According to analysts from Wells Fargo, sluggish GDP growth, tepid wage growth, and above-target inflation put the Bank of England in a tight quandary. They still expect the next rate hike in February and not next week. 

Key Quotes: 

“Data released this morning showed GDP in the U.K. expanding 0.4 percent (not annualized) in Q3. The print was 0.1 percentage points higher than consensus expectations. On a year-over-year basis, real economic growth held steady at 1.5 percent. Although a breakdown of GDP into its underlying demand components is not available at this time, examining growth data by sector reveals mixed results.” 

“Output in the service sector moved in-line with total output, rising 0.4 percent over the quarter and 1.5 percent over the year. The finance and distribution, hotels & restaurants sectors were the top performers in the quarter. On the production side of the economy, output rose a solid 1.0 percent, the fastest pace of 2017. Gains in manufacturing and mining & quarrying, however, were offset by the second consecutive quarterly decline in construction output, which fell 0.7 percent over the quarter.” 

“Above-target inflation and stagnant wage growth in the U.K. likely continued to weigh on economic growth in Q3.”

“From a monetary policy perspective, this morning’s print likely represents a mixed bag for policymakers at the Bank of England (BoE). Financial markets appear convinced that the BoE will hike rates at the conclusion of the Monetary Policy Committee’s meeting on November 2.”

“We are maintaining our call for the next rate hike to occur in February 2018. Even with the above-target inflation, real economic growth of 1.5 percent is sluggish, and wages have shown few signs of accelerating. That said, we recognize that the risks of a rate hike by the BoE next week have clearly moved higher. Regardless of when the first move occurs, the pace of tightening through 2018 will likely remain gradual as inflation begins to recede and economic growth remains modest.”