The Bank of England may be less likely to raise interest rates in May because of revisions to last year’s GDP figures, according to Lombard Street Research.
Yesterday, the Office for National Statistics said that GDP growth in Britain fell by 0.5 per cent in the final quarter of 2010, rather than the previously estimated 0.6 per cent contraction. Jamie Dannhauser, an economist at LSR, claims the Bank’s Monetary Policy Committee will find the new data to be “a concern” but says the revisions for the whole of 2010 paint a more worrying picture.
“More of the stimulus to domestic spending through 2010 is now estimated to have come from inventories rather than final demand,” he explains, adding that last year’s economic growth was further subdued by expansion in net exports.
The economist suggests that previous estimates about the strength of consumer demand in Britain have been “overstated”, although it remains unclear whether this is a temporary effect of the VAT rise in January or permanent pressure from rising inflation and eroded disposable incomes.
Dannhauser predicts this uncertainty will be sufficient to convince the MPC to hold off any interest rate increases until the summer, when new data may shed further light on the health of the country’s economy.