UK economy likely slowed down more than forecast in Q4 2015

The December 2015 Turnover and Orders in Production and Services Industries' (TOPSI) services component posted at 1.5% m/m, resulting in the decline of 1.9% q/q in Q4 2015 in non-seasonally adjusted nominal terms after growing 2.8% q/q in Q3 2015. This is likely to correspond to a decline of 3% q/q in seasonally adjusted real terms after falling 0.9% q/q in Q3 2015.

"We revise down our Q4 15 GDP forecast 0.1pp to 0.4% q/q in light of this weak print, as well weakness in industrial production and construction output. We therefore expect the ONS to revise down its estimate of Q4 15 GDP growth by 0.1pp on the second release (25 February 2016) from a print of 0.5% q/q in the preliminary release", says Barclays.

This highlights a more cautious macro view and bottom-of-consensus economic projections. In reality, it looks like the magnitude of the slowdown was bigger than expectations, with data being downwardly revised for Q2 and Q3 of 2015. This indicates that the economic activity is likely to ease by 0.3pp to 1.9% in 2016 and to 1.6% in 2017.

The preliminary estimate of Q4 2015 GDP growth is at 0.48% q/q, mainly driven by services, which contributed 0.52 percentage points, with industrial output and construction subtracting 0.03pp and 0.01pp respectively. However, the preliminary estimate of GDP is based on information that was available by mid-January.