Services sector offers unexpected boost to UK economy
Britain’s economy performed better than expected in the fourth quarter thanks to the country’s powerhouse services sector, though there are warning signs of “slower and uneven” growth.
The Office for National Statistics (ONS) said gross domestic product (GDP) grew by 0.5 per cent in its initial estimate for October to December last year, following growth of 0.4 per cent in the third quarter. Economists had been expecting growth of 0.4 per cent, according to consensus figures, though a minority had forecast a slowdown to 0.3 per cent on the back of a temporary shutdown of a major North Sea oil pipeline last month.
The biggest impact came from the UK’S services sector, which accounts for around 79 per cent of the economy. It grew 0.6 per cent quarter on quarter, driven by business and financial services from the likes of lawyers, architects and business administrators.
However, the ONS said that longer-term trends were pointing to a broader slowdown. ONS head of GDP Darren Morgan said: “Despite a slight uptick in the latest quarter, the underlying picture is of slower and uneven growth across the economy.
“The boost to the economy at the end of the year came from a range of services including recruitment agencies, letting agents and office management. Other services – notably consumer-facing sectors – showed much slower growth.” This includes areas such as distribution, catering, transport and communications.
The news comes amid a squeeze on consumer finances from higher inflation, triggered by the collapse in the pound in the wake of the Brexit vote, and dismal wage growth.
“Manufacturing also grew strongly but construction again fell,” Mr Morgan added.
Sterling initially rose following the news, having made gains of 1 per cent to just shy of $1.43 against the US dollar and rising to €1.14 against the euro, but enthusiasm waned by the afternoon.
The economy is still struggling to bounce back to levels of the final quarter of 2016, when GDP rose by 0.6 per cent.
The release came shortly after Bank of England governor Mark Carney said that the vote to leave the EU had cost the UK “tens of billions of pounds” in lost economic activity, blaming the “Brexit effect” for holding back investment in the UK.
“The economy is about a percentage point less in size than we expected before the vote at this point in time – by the end of the year, probably two percentage points,” he said in an interview. However, he said the impact was likely to be “short term” and there was the prospect of a “conscious recoupling” with the international economy in 2018.
Over the fourth quarter, strong manufacturing activity helped fuel a 0.6 per cent rise in production industries