UK: Cracks appearing in consumer-facing sectors give reason for BoE pause - ING

As the Bank of England prepares to meet today, it'll be well aware that hiking in the aftermath of the weakest quarterly growth reading since 2012 would be a tough sell, suggests James Smith, Developed Markets Economist at ING. 

Key Quotes

“Admittedly some of the causes of the slowdown were temporary – multiple bouts of snow saw construction activity make an unusually large negative contribution to first quarter GDP. It’s possible some of this gets revised up – and it’ll be interesting to see if the Bank agrees on Thursday.”

“But the cracks appearing in consumer-facing sectors look more concerning. The perfect storm of weaker demand, higher business rates and rising minimum wage costs resulted in one of the worst quarters for retail since the financial crisis. A rate hike now might prove to be one headwind too many for retailers, many of whom have become highly leveraged in the post-crisis years. And things aren’t set to get much better immediately - real incomes remain pressured by higher fuel and food costs (albeit the worst of the household squeeze has passed).”

“Alarmingly, consumer credit growth appears to have collapsed in recent months, with banks reportedly scaling back loan availability significantly. This may prove to be a blip, but we suspect the Bank will want to buy time until the underlying drivers of this rapid downfall become clearer.”