Slow growth momentum to hamper absorption of UK economy’s spare capacity in near term

UK’s GDP slowed in the first quarter of 2016, expanding 0.4% q/q. It was on par with consensus forecast. On year-on-year terms, the economic growth remained unchanged from Q4 2015's at 2.1% y/y. Meanwhile, services sector grew 0.1% m/m in February after the data was revised down to 0.1% m/m in the prior month.

The first quarter economic growth still appears to be dependent on the services sector, which expanded 0.6% q/q, in spite of the drag from construction and industrial production, noted Lloyds Bank. Construction is estimated to have contracted 0.9% and industrial production 0.4% in the first quarter.

Today’s first estimate of the UK GDP growth suggests that economic growth in H1 does not seem to be significantly different from the 2015 rate. The heightened uncertainty is expected to have been a drag on the economic activity. In the near term, the slow growth rate is expected to hamper the absorption of UK’s space capacity and reduce the upward pressure on domestic costs, according to Lloyds Bank.