Bank of England deputy governor claims vindication on explanation for UK economy first quarter slump

The Bank has said that it thinks the shock drop in GDP growth to just 0.1 per cent in the three months to March was almost entirely due to 'Beast from the East' snow storms

'I am actually reasonably confident about our understanding of what’s going on' said Mr Ramsden (REUTERS)

A deputy governor of the Bank of England has said its view that the economy’s first quarter slump was mainly due to the snow is being vindicated by the economic data.

The Bank has said that it thinks the shock drop in GDP growth to just 0.1 per cent in the three months to March was almost entirely due to “Beast from the East” snow storms and that growth will bounce back to 0.4 per cent in the second quarter.

But the Office for National Statistics argues that the Q1 disappointment reflected underlying weaknesses in the economy which are not weather-driven.

In a speech in London on Thursday, Dave Ramsden, the deputy governor for markets and banking, argued that the most recent surveys and data supported the Bank’s view, rather than that of the statistics agency.

“The data we have had so far suggests our interpretation of the slowdown in Q1 as temporary looks to be being borne out,” he told the Barclays Inflation Conference.

“Consumer confidence and consumer credit both picked up in the latest data, as did retail sales and several business surveys. That included the latest services [Purchasing Managers’ Index] output balance, representing 80 per cent of the economy. So far at least our May judgement looks on track.”

Despite its view that the first quarter GDP figures, when growth fell to its weakest rate in more than five years, were artificially depressed, the Bank’s Monetary Policy Committee opted to keep interest rates on hold at 0.5 per cent to see whether their analysis was correct.

If other members of the MPC share Mr Ramsden’s view, the chances of the Bank raising interest rates in August, the time of the next quarterly Inflation Report from the Bank, will be higher.

Financial markets last month were pricing in around three rate rises over the next three years.

Mr Ramsden, a former chief adviser to the Treasury before joining the Bank in September 2017, said that without that tightening the Bank’s projections suggested inflation would remain at 2.4 per cent, rather than falling to the 2 per cent official target.

“This does not seem a desirable outcome,” he said.

Mr Ramsden admitted that there was still a risk that households might spend less in order to build up their savings rate, which could slow the overall economy this year relative to the Bank’s baseline expectations.

But he was clearly determined to strike a bullish note about the economy and the Bank’s ability to forecast it.

“I am actually reasonably confident about our understanding of what’s going on,” he said.

“Forecasts are never going to be perfectly accurate. But over the last year I think we have got the broad narrative, and our understanding of the key moving parts, about right.”