Economy re-gains some momentum

The latest evidence suggests that the economy has picked up some pace in the second half of the year. For a start, quarterly GDP growth edged up from Q2’s 0.3% rate, to 0.4% in Q3. And October’s Markit/CIPS all-sector PMI points to a further pick-up to about 0.5%, above the MPC’s 0.4% Q4 estimate in its November Inflation Report. Admittedly, the PMIs painted an unduly optimistic picture relative to the official figures at the start of 2017. But the official manufacturing figures appear to now be reflecting the strength of the surveys. And the solid rise in the services output at the end of Q3 sets up a good springboard for growth in Q4. Overall, we continue to think that the economy will hold onto its recent momentum in Q4 and post decent growth of 2% or so next year. As a result, it might not be too long before the MPC moves again. We envisage another interest rate hike in the second quarter of 2018.