Fri Apr 27 03:30:00 CDT 2018

Consensus Actual Previous
Quarter over Quarter 0.3% 0.1% 0.4%
Year over Year 1.3% 1.2% 1.4%

Economic growth decelerated far more rapidly than expected at the start of the year. The quarterly rate provisionally weighed in at just 0.1 percent, down from an unrevised 0.4 percent at the end of 2017 and the worst performance since the fourth quarter of 2012. The annual rate of expansion dipped a couple of notches to 1.2 percent, its weakest mark since April-June 2012.

There are only limited details provided by the ONS in the first GDP estimate for which less than 45 percent of the hard data are available. However, significantly, it seems that the unseasonably bad weather which affected much of the country in late February and early March had only a small impact. Retail sales and construction were hit but most other areas of the economy escaped largely unharmed. Rather, the ONS maintains that there was clear deceleration in underlying growth too.

In terms of output, goods production rose a respectable 0.7 percent on the quarter but within this, manufacturing slowed to just a 0.2 percent rate. Services expanded 0.3 percent with business services and the finance sector again the main driver, increasing 0.4 percent and contributing 0.14 percentage points to quarterly GDP growth. At the same time, transport, storage and communication rose 0.4 percent while government and other services grew 0.1 percent. In contrast, distribution, hotels and catering fell 0.1 percent with retail trade declining 0.5 percent.

Elsewhere, agriculture contracted a quarterly 1.4 percent and construction 3.3 percent.

Today's report is surprisingly weak and must make a monetary tightening next month very unlikely. The provisional growth rates may well be revised in due course but as they currently stand the BoE MPC's hawks will really struggle to justify another hike in Bank Rate any time soon.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. The first, or provisional, estimate will only include a breakdown in terms of the main output sectors. Subsequent estimates will provide details of the key GDP expenditure components and full national accounts.

GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Stock market Investors like to see healthy economic growth because robust business activity translates to higher corporate profits. The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. These data, which follow the international classification system (SNA93), are readily comparable to other industrialized countries. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.

Each financial market reacts differently to GDP data because of their focus. For example, equity market participants cheer healthy economic growth because it improves the corporate profit outlook while weak growth generally means anemic earnings. Equities generally drop on disappointing growth and climb on good growth prospects.

Bond or fixed income markets are contrarians. They prefer weak growth so that there is less of a chance of higher central bank interest rates and inflation. When GDP growth is poor or negative it indicates anemic or negative economic activity. Bond prices will rise and interest rates will fall. When growth is positive and good, interest rates will be higher and bond prices lower.

Currency traders prefer healthy growth and higher interest rates. Both lead to increased demand for a local currency. However, inflationary pressures put pressure on a currency regardless of growth. For example, if the UK reports that the consumer price index has risen more than the Bank of England's 2 percent inflation target, demand for sterling could decline. Similarly, when the Bank of England lowers interest rates, the pound sterling weakens. (Currency traders also watch the interest rate spread between countries.)