Stockpiling was a key factor for UK Q1 growth

James Smith, a developed markets economist at ING, notes that stockpiling frenzy lifted UK growth during the first quarter, while some better news on consumer activity suggests underlying economic momentum could stay a little stronger heading into the summer. 

• After a bumpy first quarter in UK politics, it follows that the first quarter growth figures should be equally noisy. While the 0.5% first-quarter growth figure was in line with both our own and market expectations, it masks some pretty interesting developments beneath the surface.
• PMIs had suggested that an unprecedented level of stockpiling occurred during the first quarter, despite some anecdotal signs that low warehouse vacancy rates had constrained the ability of some firms to boost inventory substantially. But in the end, inventories made a sizable contribution to quarterly growth, as firms scrambled to build up supplies of components and finished goods to insulate against potential Brexit supply chain disruption.
• Consumer spending grew by 0.7% during the first quarter, the fastest quarterly growth in two years. This is surprising, given that consumer confidence is still at rock bottom. This is slightly at odds with some other indications of first quarter spending, which had indicated that uncertainty had continued to limit big-ticket purchases. Still, the combination of rising wage growth and a solid jobs market suggests to us that consumer spending could continue to perform a little better over the coming months, particularly now that the Brexit noise has temporarily died down.
• While much of the inventory boost was offset by imports, we still think there is the potential for a correction in overall economic growth in the second quarter. Manufacturing contributed 0.2 percentage points to first-quarter GDP growth, and this is unlikely to be repeated over the coming months - especially given the uncertain outlook for global growth.