Has UK output growth evolved as we expected?

The purpose of Bank Overground is to share our internal analysis. Each bite-sized post summarises a piece of analysis that supported a policy or operational decision.
Published on 07 June 2019
Over the past year or so, GDP growth has evolved broadly as the MPC expected, but its composition has differed. Business investment and net trade have been much weaker than anticipated, while household consumption has been stronger.

The Bank of England’s Monetary Policy Committee (MPC) regularly assesses how the economy has evolved relative to its forecasts.

In its February 2018 forecast, the MPC projected that GDP would grow by 1.8% in the year to 2019 Q1. The latest official data indicate that growth has been very close to that forecast.  

However, the composition of GDP growth has been different to what was anticipated. The expected rotation of GDP growth away from consumer spending towards business investment and net trade has not materialised. 

Business investment has been much weaker than anticipated, falling by just over 2% since the February 2018 Inflation Report (Table A) versus the 4% rise projected. That is likely to reflect the impact of Brexit-related uncertainty.  

Table A

Household consumption has been stronger than expected, while business investment and net trade have been weaker(a)
Percentage change

                                  February 2018 projection May 2019 outturn  
Household consumption                        2
Business investment 4 -2¼
Net trade(b) ¾
  • (a) Percentage change between latest quarterly data available at the time of the February 2018 Inflation Report (2017 Q3) and the May 2019 Inflation Report (2018 Q4).

    (b) Contribution to GDP growth.

Net trade has also been weaker, reducing GDP growth rather than making a positive contribution. That is likely to have reflected the unexpected slowdown in the global economy. Economies with which the UK does most trade, such as the euro area, have grown more slowly than the MPC had anticipated.  

By contrast, domestic employment and real wage growth have been stronger than expected. That is likely to have supported consumer spending.

These trends have been reflected in the MPC’s latest forecasts. The projection for global growth has been revised down in recent forecasts, and business investment growth is expected to remain weak while Brexit-related uncertainty persists.

Meanwhile the projection for household consumption growth has been revised up in recent forecasts. It is expected to remain at around the rate it has averaged since the EU referendum.

This post has been prepared with the help of Michael Goldby, Alan Mankikar and Luc Tucker.

This analysis was presented to the MPC as part of its May 2019 round.

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