IOD: ‘Latest growth figures ‘a spanner in the works’ for Bank of England’

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Responding to latest official GDP statistics for the UK, showing growth in Q1 fell to 0.1%, Tej Parikh, Senior Economist at the Institute of Directors, said:

“The economic growth figures are particularly disappointing. Although a dip was expected, it was not anticipated to be this sharp.

“The icy weather slowed industrial deliveries, grounded construction projects, and pushed consumers off the high-street, so some cooling was expected. But it clear that some further underlying weakness persists in the economy.

“It should hopefully bounce back this quarter. Some of the business activity lost due to the snow will be recovered over the coming months, leading to a rebound in the figures. Consumer spending power will also be bolstered by the fall in inflation.

“But, the bigger picture remains one of a safe but sluggish economy. Confidence amongst business leaders, whilst no longer outright pessimistic, remains very much on the fence, and that is largely a result of the ongoing uncertainty surrounding the precise nature of Brexit.

“Quarterly changes in growth should also not distract us from raising the economy’s long-term potential. These figures reaffirm that improving productivity by investing in skills, infrastructure, and technology should remain an urgent priority for the Government.”

On the implications for the Bank of England’s May decision on interest rates:

“For the Bank of England, weaker economic growth certainly throws a spanner in the works. An interest rate rise next month has long been on the cards but today’s data, alongside the need for clearer evidence of growing wage pressures, calls that into question. The Bank will need to be certain that the drop in economic growth in Q1 was only temporary.”