We know more about the softness of the Q1 GDP release. Excluding stocks, GDP growth stood at +0.4% q/q. Consumer spending grew by a muted +0.2% q/q after +0.4% in Q4. Fixed investment increased by +0.9% q/q after +1.1% in Q4 but growth came mostly from private dwelling and general government as business investment fell by -0.2% q/q with gross operating surplus of corporations decreasing by -1.3%. Public spending supported growth (+0.5% q/q) to the greatest extent since Q1 2016. Going forward, we expect the domestic economy to grow moderately. Consumer spending should be supported by the rise in real purchasing power as wage growth has recently outpaced inflation. Investment growth will remain weak in light of softening business confidence. Our forecast of +1.5% in 2018 is on the upper end of the consensus but we are relatively confident that there will be an upside revision on June 29 or a stronger than expected Q2 rebound. Above +2% inflation in 2018 and 2019 would justify a +25bp rate hike by the Bank of England in November 2018.
