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GDP Growth Suffers

30 Apr 2018

Jack Turner, Research Analyst

This week we review GDP growth data releases in the UK and US, as well as provide an update on UK consumer confidence and ECB policy guidance.

GDP Growth Suffers

In Q1 2018, the UK economy grew at its slowest rate since Q4 2012 according to the Office for National Statistics (ONS). GDP growth was 0.1%, down from the 0.4% in Q4 2017, due to a sharp fall in construction output, subdued consumer-facing industries and a sluggish manufacturing sector. The ONS said the bad weather had a "relatively small" negative impact, but that the figures could be revised further once data rather than estimates are used for March.


The GfK consumer confidence index slipped by two points in April to –9 as consumers appeared to be becoming more pessimistic about their personal finances despite higher wage growth and strong employment. It is the 28th consecutive month in negative territory. The GfK flagged the low numbers would continue as long as the view on the general economic situation remained depressed and while the headlines pointed to household wealth increasing, consumers were unlikely to act until they saw evidence in bank balances and pay packets.

Mario Draghi, European Central Bank (ECB) president, acknowledged that there had been a “moderation” in the pace of the Eurozone recovery, with “a loss of momentum that is pretty broad based across countries and all sectors”, but that he did not see a reason to change monetary policy. While the ECB kept its monetary policy on hold, it held to its promise to continue to buy bonds under its quantitative easing programme until the end of September, and maintain interest rates at their current record low levels “well past” the end of their asset purchases. Mr Draghi’s guarded language could mean that the ECB may wait until later than previously expected to provide the markets with revised “forward guidance” on its plans.

US GDP expanded 2.3% in Q1 2018 year-on-year, which was a modest slowdown from the 2.9% rate of expansion recorded in Q4 2017, but marginally ahead of consensus expectations of 2.1%. The number was possibly dragged down by statistical anomalies, meaning growth in Q1 may have been stronger than it appeared and follows a trend of recent years in which the Q1 number is always weaker than expected. The number also does not appear to have seen any benefits from the large tax cuts that were voted through in December.


The FTSE 100 closed on Friday at a two month high as the Korean leaders meeting prompted investor optimism, following on from the upwards trend in Asian markets, and because the low UK GDP growth number, which drove the value of Sterling lower, fuelled demand for shares with international exposure. This helped 7IM portfolios. Using the Balanced fund as an example, we added 3% of the value of the fund to the FTSE 100 in November and a further 1% in February having remained underweight for much of 2017. This leaves our holdings nearer to our neutral strategic asset allocation weighting for the FTSE 100 than at anytime in recent history.

The index is up 7% in April, slightly negative on a three month basis (down 0.8%) and up 7.9% year-on-year.


02 May –EU GDP Growth Rate Q1 Flash // 03 May –UK Local Elections // 03 May –US Balance of Trade (Mar)



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The value of your investments and the income from them may go down as well as up, and you could get back less than you invested.

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