TD Securities projects UK GDP to grow 0.1% month-on-month in May, led by services and strong retail sales, while manufacturing and industrial output remain under pressure from Middle East-related headwinds and higher input costs. Governor Bailey’s Mansion House speech emphasized inflation returning to target more slowly, weak productivity, and a focus on stability, with little indication of support for near-term rate hikes.
GDP outlook and monetary policy signals
“UK GDP likely scraped out modest growth in May, which we see at 0.1% m/m (mkt: 0.0%; prior: -0.1%). We expect this to be led by the services sector, which should benefit from the strong retail sales recorded during the month and the effect of mean reversion in some major components, bringing the May growth to 0.1% m/m (mkt: 0.1%; prior: -0.2%).”
“Offsetting this, Manufacturing and Industrial Production likely remained under pressure as the peak of the Middle East crisis weighed on activity and higher input costs dampened output.”
“Should this materialise, it would be in line with our forecast of 0.2% q/q and slightly above BoE’s most recent projections of 0.1% q/q for Q2.”
“Similar to his previous speeches, Bailey argued that UK inflation would likely have returned to the 2% target by now were it not for recent energy-related supply shocks, and remains confident that it will do so, albeit more slowly than previously expected.”
“Ultimately, though the speech is more long-term outlook focused, there was little sense that he would be ready to vote for a hike in the upcoming meetings.”
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