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Poor April PMI’s could prompt GDP downgrade

The latest UK services PMI for April completed a triple dose of disappointing data for the UK economy this week, suggesting the possibility of a UK economy stalling out in Q2.

Coming in at 52.3, its lowest level for three years, on top of this week’s lacklustre construction and manufacturing numbers suggests that the UK economy could be about to hit not only hit a pothole in Q2, but potentially come to a halt.

This trifecta of disappointment could well see the Bank of England revise down its growth forecasts for the UK economy when it meets next  week for its latest policy meeting and quarterly inflation report.

The current forecast for 2016 is for the UK economy to grow at 2.2%, which at this point looks like it could be difficult to achieve given the 0.4% expansion seen in Q1, and the likelihood that Q2 could well fall significantly short of that.

There has been some speculation that these poor numbers, if sustained could prompt speculation about the need for further stimulus, or a rate cut, however this seems premature at a time when inflation is showing some signs of picking up and wage growth still remains above the level of inflation.

Once the June referendum is out of the way the outlook might become clearer, and it would probably be August before the Bank of England would have a clearer picture of how the UK economy has been affected by the uncertainty surrounding the looming Brexit vote, or whether the slowdown is symptomatic of a wider global malaise.

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