Stocks have increased continuously since Q1 2018 – and accelerated markedly in Q1 2019. An adjustment is ongoing, indicated by figures for monthly GDP which was down -0.1% m/m in March and -0.4% in April. Manufacturing output even fell -3.9% m/m in April. Services showed signs of weakness as well (flat m/m in April) after being artificially driven by wholesale & retail as well as information & communication previously, most probably linked to Brexit preparations. Hence, we expect stocks to subtract -0.4pp from Q2 GDP growth after adding +0.8pp in Q1. The race for the next PM in the UK looks tight and increases the uncertainty. The expected appointment by 22 July would not allow enough time for renegotiating the Irish backstop which most of the candidates want. A new extension of Article 50 is likely (until mid or end-2020) possibly accompanied by a referendum. Yet, given the hard stance on both sides (UK and EU), overall uncertainty as well the no deal probability (from 25% to 40%) are likely to increase. Hence, UK companies will accelerate stockpiling again in Q3. We expect GDP growth of +1.2% in 2019 and +1% in 2020.
