The firm has taken a more bearish perspective recently than several more upbeat views on the UK economy, which have pointed to growth of 0.4% for Q4 2017.
In a note, issued this week, the firm said: “We see considerable downside risk to the consensus forecast that GDP increased by 0.4% quarter-on-quarter in Q4, the same as in Q3. We expect Friday’s preliminary estimate to reveal that GDP increased by 0.3%, greatly reducing the chances that the Monetary Policy Committee presses ahead with another interest rate rise in the first half of 2018.”
Pantheon noted that business surveys are painting a widely varying picture.
The CBI’s Monthly Growth Indicator points to GDP growth accelerating to 0.6% in Q4, while the British Chambers of Commerce Quarterly Economics Survey is consistent with solid growth of 0.5%. But Markit’s PMIs point to a 0.4% expansion, while Lloyds’ Business Confidence Barometer suggests growth slowed to 0.2%.
Pantheon suggested that the surveys should be only used as a loose guide to the official data, with an average error on quarterly GDP of between 0.3% and 0.5% in the last 13 years.
It said the surveys “strongly suggest the economy is neither booming nor contracting but beyond that, say little of value”, adding official government data already released points to a coin toss between 0.3% and 0.4%.
Oil and gas drop
But backing its more bearish view, Pantheon believes that the consensus view has overlooked a huge fall in oil and gas output.
It said: “The key Forties pipeline, which carries about one-third of the UK’s offshore oil and gas output, shut down between 11 and 23 December. Bloomberg collects data on producers’ estimates of the volume of oil due to be loaded onto tankers at terminals and at offshore loading facilities. These data have a good track record at predicting month-to-month changes in the official measure of output in the oil and gas sector and point to a colossal 23% drop in official measure in December.
“Oil and gas output accounts for 80% of output in the mining and quarrying sector. We estimate that the latter fell by 18% in December, subtracting 2.2pp from month-to-month growth in total industrial production.”
Looking at retail sales, it added: “Retail sales data up to December suggest that output in the distribution sector grew by 0.4% quarter-on-quarter in Q4. So, provided that output in the non-distribution services sector continued to grow in November and December at the average rate of the first 10 months of 2017, output in the whole services sector likely increased by 0.4%, contributing 0.31 percentage points to GDP growth. All these contributions sum to a 0.35% rise in GDP.”
