UK Economy Expands by 0.6% in Q1 2024 vs. a 0.4% Forecast

The UK Economy Finds Momentum

On Friday (May 10), the UK economy was in focus following the Bank of England monetary policy decision. Q1 2024 GDP numbers and economic indicators for March warranted investor attention.

The UK economy expanded by 0.6% quarter-on-quarter in Q1 2024 after contracting by 0.3% in Q4 2023. Economists forecast the economy to grow by 0.4%.

According to the Office for National Statistics,

• Services sector output increased by 0.7% quarter-on-quarter in Q1 2024. Significantly, services output rose for the first time quarter-on-quarter since Q1 2023.
• Production grew by 0.8%, with manufacturing the main contributor.
• However, the construction sector contracted by 0.9%.
• Net trade, household consumption, and government spending contributed to the headline GDP numbers.
• Household consumption increased by 0.2% in Q1 2024.

In March, the UK economy expanded by 0.4% after growth of 0.1% in February. Economists expected the economy to grow by 0.1%.

Bank of England Monetary Policy Implications

The Bank of England left interest rates at 5.25% on Thursday (May 9) in a 7-2 vote favoring the status quo. While the quarter-on-quarter headline GDP numbers were upbeat, the March figures also beat expectations, questioning BoE concerns about economic slack. Nevertheless, inflation remains the focal point.

GBP/USD Reaction to the UK Q4 GDP Report

Before the UK data, the GBP/USD reached a high of $1.25295 before falling to a low of $1.25119.

However, the GBP/USD reacted to the UK GDP Report, falling to a low of $1.25137 before surging to a high of $1.25400.

On Friday (May 10), the GBP/USD was up 0.13% to $1.25400.

Up Next

On Friday (May 10), the Bank of England will be in focus again. Chief Economist Huw Pill will attend the National MPC Agency Briefing. Monetary Policy Committee member Swati Dhingra will deliver closing remarks at Kings College London Econdat Conference 2024.

Later in the Friday session, Michigan Consumer Sentiment figures for May will put the Fed in focus. Softer-than-expected consumer sentiment numbers could further influence investor expectations of a potential September Fed rate cut.

Economists forecast the Michigan Consumer Sentiment Index to fall from 77.2 to 76.0. However, investors should also consider the sub-components, including the Michigan Inflation Expectations Index. Economists expect the Index to ease from 3.2% to 3.1%.

With consumer sentiment in focus, investors should monitor FOMC member commentary. FOMC members Michelle Bowman, Austan Goolsbee, and Michael Barr are on the calendar to speak.