Growth slower but still solid in Q1

The last month has brought further signs that GDP growth has slowed a little from the rapid rates seen towards the end of last year. Output fell in all the main sectors in January. And the timelier survey evidence, such as the Markit/CIPS surveys, points to a slowdown in quarterly growth from 0.7% in Q4 to about 0.5% in Q1. In particular, consumers appear to be feeling the adverse effects of inflation’s exchange-rate induced rise, with average earnings growth failing to match inflation’s pick-up so far. Indeed, retail sales volumes are on course to fall on a quarterly basis in Q1, after a strong 1.2% quarterly rise in Q4. However, with rock-bottom interest rates, solid consumer confidence and record rates of employment growth helping to support consumer spending, we doubt that growth in spending, or overall GDP, is about to suddenly grind to a halt in the quarters ahead.