UK economy springs surprise

GDP growth unexpectedly picks up speed in the fourth quarter

British economic growth unexpectedly picked up speed in the last three months of 2017, according to official data which showed the impact of Brexit still weighing on the economy but not as heavily as once feared by investors.

Gross domestic product grew at its fastest pace of the year, rising by 0.5% from the previous three months. That was faster than the median forecast for quarterly growth to remain at 0.4% in a Reuters poll of economists.

However, the Office for National Statistics said the big picture remained one of a slower and more uneven expansion in the world’s sixth-biggest economy.

In 2017 as a whole, growth was 1.8% compared with 1.9% in 2016, better than many forecasters had predicted at the time of the Brexit referendum but the slowest since 2012.

“Today’s data is another positive surprise for the economy that puts pressure on the Bank of England to raise interest rates for a second time sooner rather than later,” Jasper Lawler, head of research at London Capital Group, said.

The BoE said last month it expected the economy might have slowed slightly in late 2017. Its interest rate-setters are due to announce their next decision on borrowing costs on Feb 8.

They raised rates for the first time in more than a decade in November. Most economists have said they expect the next rate hike in late 2018 but some think it could come as soon as May.

Britain’s economy grew more weakly than other big rich nations for much of last year as the impact of the 2016 Brexit vote pushed up inflation and many businesses turned cautious ahead of the departure from the European Union in March 2019.

However, Britain has been helped by the recovery in the world economy last year which is expected to carry on in 2018.

Bank of England governor Mark Carney said earlier yesterday that Britain’s economy could start to grow more quickly later this year, if there is clarity about Britain’s future relationship with the EU.

“Despite a slight uptick in the latest quarter, the underlying picture is of slower and uneven growth across the economy,” ONS statistician Darren Morgan said.

While recruitment agencies, letting agents and office management firms helped boost growth, companies which relied on spending by consumers had a much slower fourth quarter.

Manufacturers, who have ridden the wave of strong demand from the recovery in the global economy, also grew strongly.

“If the world economy is really picking up, the UK probably should be performing even stronger than it currently is, and highlights what the UK might lose out from in the event that it has to renegotiate all its trade deals once again,” Commerzbank economist Peter Dixon said.

Compared with the same period in 2016, growth between October and December slowed to 1.5%, its weakest pace since the first quarter of 2013 and down from growth of 1.7% in the third quarter.

The Reuters poll had pointed to growth of 1.4%.

The ONS data showed Britain’s dominant services sector grew by 0.6% in the fourth quarter, gaining pace after growth of 0.4% in the third quarter.

In November alone, services output growth was the strongest since August 2016, jumping by 0.4% from October. The ONS said it was expecting no monthly growth in services in December given the scale of November’s increase.

Industrial output slowed to show growth of 0.6% from 1.3% in the third quarter after the Forties oil pipeline, Britain’s biggest, was closed for more than two weeks in December after the discovery of a crack.

Construction sector shrank by 1.0%, its worst quarterly performance since the third quarter of 2012.