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Wedding and weather boost economy as Bank mulls rate hike decision

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Written by: Lana Clements
10/07/2018
The Royal wedding and sunny weather helped boost the economy in May, but a Bank of England interest rate hike next month is far from a done deal, critics said.

The economy grew 0.3% in May from April, with GDP up 0.2% in the three months to May, according to the Office for National Statistics (ONS).

The government body has changed the way it releases economy updates, with a monthly figure and rolling quarterly figure now released, replacing the previous quarterly updates.

The UK’s dominant service sector drove growth, with construction and production both falling.

ONS head of national accounts, Rob Kent-Smith, said: “The first of our new rolling estimates of GDP shows a mixed picture of the UK economy with modest growth driven by the services sector, partly offset by falling construction and industrial output.

“Services, in particular, grew robustly in May with retailers enjoying a double boost from the warm weather and the royal wedding.”

Bank of England rate rise in the balance

Despite the fillip in growth, experts said a Bank of England rate rise is not a foregone conclusion.

Andrew Wishart, UK economist at Capital Economics, said: “This is the last batch of GDP data the MPC will receive before its meeting on 2 August.

“And while it was a little weaker than expected, note that another 0.3% monthly rise in GDP in June would leave quarterly GDP growth in Q2 at 0.4% – in line with the MPC’s forecast.

“Given the strong set of PMI surveys in June, this seems likely.

“As a result, we think that the figures keep the Committee on track to lift Bank Rate in August.”

However, some critics think policymakers are likely to hold fire.

Ben Brettell, senior economist at Hargreaves Lansdown, said: “Better news on growth brings the Bank of England’s August policy meeting into sharp focus.

“Markets are now pricing in a 78% chance of a rise. But I still think there’s a significant chance of a no change decision.

“The second quarter is likely to see a small uptick in GDP, but when added to the below par first quarter, this means growth in the first half of the year will be decidedly sub-trend.”

Tom Stevenson, investment director for Personal Investing at Fidelity International, added: “The first of a new-style monthly GDP report shows a continuation of an old-style economic story.

“Good weather and a Royal Wedding provided a boost to the services side of the economy in the three months to May but construction and manufacturing remain in the doldrums.

“The overall trend is yet to break out of the downward path it has traced since the beginning of 2017.

“There is nothing in today’s release to suggest the Bank of England will be rushing to raise rates in August.”

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