UK growth revised down for last three months of 2017

THE UK economy recorded slowerthan-expected growth in the last three months of 2017, posing fresh questions for the Bank of England as it eyes a further hike to interest rates.

The Office for National Statistics (ONS) said GDP grew by 0.4% in its second estimate for October to December 2017, revising down a first estimate of 0.5%.

The move caught economists offguard, with consensus figures predicting the ONS would stick by its initial estimate made in January.

It means growth stuttered towards the end of 2017, failing to accelerate beyond the 0.4% recorded during the third quarter.

The ONS said the fourth-quarter shift was caused by “a small downward revision” to output from the production industries.

It also downgraded annual GDP growth to 1.7% in 2016-17, from an initial reading of 1.8% and below the 1.9% expansion recorded for 201516.

Andy Haldane, the Bank’s chief economist, said on Wednesday that it may be forced to hike rates at a faster pace than first thought if inflation, global growth and the UK economy unexpectedly pick up speed.

Markets are predicting that the next rate rise beyond 0.5% could come as soon as May and are pencilling in at least three hikes within three years.

However, Samuel Tombs, Pantheon Macroeconomics chief UK economist, said: “This is not an economy that needs cooling with higher interest rates. The downward revision to Q4 GDP puts the UK back at the bottom of the G7 growth leader board for 2017.”

Sterling remained under pressure after the update, slipping 0.2% against the US dollar at 1.38. Versus the euro, the pound was down 0.2% at 1.29.

Britain’s services sector, which counts for nearly 80% of economic growth, expanded by 0.6% during the three months thanks to a robust performance by business and financial services, helping offset a dismal update from the construction industry, with output falling by 0.7% across the fourth quarter.

Household spending remained lacklustre, notching up a 0.3% expansion in the final three months of 2017.It also struggled on an annual basis, growing at the lowest rate since 2012 at 1.8%.

On net trade, the deficit widened by £2.5bn to £12.2bn quarter on quarter following a hefty jump in the cost of imported fuels.