Britain starts the year on weak note
Q1 GDP growth revised lower
Britain’s economy slowed more sharply than previously thought in early 2017 as the rise in inflation since the Brexit vote hit consumers and a weaker pound failed to boost exports, official figures showed yesterday, two weeks before an election. Britain was one of the world’s fastestgrowing major economies in 2016 as it shrugged off the initial shock of last June’s vote to leave the European Union, and employment has hit a record high. But living standards are being squeezed now as inflation rises and the economy as a whole slows. During the first three months of 2017, the economy expanded at its slowest rate in a year, with gross domestic product up by just 0.2% compared with the previous three months, Britain’s Office for National Statistics said. That was weaker than an earlier estimate of 0.3% growth. By contrast, Germany’s economy grew by 0.6% and Spain’s expanded by 0.8% in the first quarter. Most economists polled by Reuters had forecast Britain’s rate of growth would stay unchanged, which already represented a sharp slowdown from the rapid 0.7% pace achieved in the final three months of 2016. Year-on-year growth in early 2017 fell to 2.0% from an initial estimate of 2.1%. “UK GDP growth slowed ... as consumerfacing industries such as retail and accommodation fell and household spending slowed. This was partly due to rising prices,” the ONS said.
Some economists said they expected growth in the three months to June to strengthen slightly, reflecting an improvement in retail sales since the end of the first quarter.
“Business surveys and a strong performance on the high street suggest that there is a good chance that quarterly GDP growth will rebound in the second quarter,” said Capital Economics analyst Ruth Gregory.
Separate figures from the British Bankers’ Association showed consumer borrowing picked up a bit of pace last month as shoppers spent more on food over the Easter holidays.
But it also said mortgage approvals, which act as a gauge of the public’s economic sentiment, fell to a five-month low. Opinion polls suggest Prime Minister Theresa May is on track for a comfortable victory in the June 8 election. She says she wants a bigger parliamentary majority to strengthen her hand in Brexit talks which must be completed by the end of March 2019. After adjusting for inflation, household spending in the first quarter of 2017 rose by just 0.3%, its smallest increase since the final three months of 2014. The distribution and wholesale sector — which includes retailers — contracted by the biggest amount since early 2010. While business investment picked up, growing by a better-than-expected 0.6% on the quarter, net trade lopped 1.4 percentage points off the quarterly GDP growth rate after a strong expansion in late 2016. Britain’s economy grew 1.8% last year. But that growth relied heavily on consumer spending, which this year has come under increased pressure from rising inflation as stores push up prices in response to sterling’s sharp fall after the June 2016 Brexit vote. Last month consumer price inflation reached 2.7%, its highest since September 2013. The Bank of England said earlier this month that it expected first-quarter growth to be revised up to 0.4%, and for the economy to grow 1.9% this year, barely changed from 2016, as stronger investment and exports compensate for weakening household spending growth. Most private-sector forecasters polled by Reuters see a slightly sharper slowdown. Few expect the BoE to raise interest rates before 2019 as inflation is forecast to fall next year once the impact of sterling’s weakness fades, while uncertainty during the nearly two years of Brexit talks ahead is predicted to drag on growth.