UK growth slows to 4-year low as BoE seeks rate hike
london — Britain’s economy grew at its slowest pace since 2013 in the 12 months after last year’s Brexit vote, data showed on Friday, painting a subdued picture as the Bank of England prepares to raise interest rates for the first time in a decade.
The world’s fifth-biggest economy was just 1.5 per cent bigger than a year earlier in the second quarter, the weakest year-on-year expansion in more than four years and down from a rate of 1.8 per cent in the first three months of the year.
Britain’s Office for National Statistics had previously estimated second-quarter growth at 1.7 per cent, and none of the economists polled by Reuters before the data had expected such a big downward revision.
Friday’s data also showed a monthly fall in output for the services sector in July, boding poorly for third-quarter growth.
Sterling fell after the data and prompted some economists to reconsider their prediction of a rate hike at the end of the BoE’s next meeting on November 2.
“I’m sticking to my call for a hike in November, but I’m much more nervous now than I was prior to this data release,” Scotiabank’s Alan Clarke wrote in a note to clients.
However, the weak data might not stand in the way of the BoE raising interest rates from their record low 0.25 per cent. BoE Governor Mark Carney said on Friday the economy was on track for a rate hike “in the relatively near term”, two weeks after the BoE jolted markets by flagging a rate rise “in the coming months,” despite weak growth this year.
The BoE has downgraded its estimate of how fast Britain’s economy can grow without generating excess inflation because of the impact of Brexit, so Friday’s weaker growth picture is not necessarily fatal for the chances of a November rate rise.
A major annual set of revisions of Britain’s official data showed show stronger business investment, net exports and household savings, but also a larger current account deficit.
Britain sucked in £23.2 billion ($31.0 billion) of foreign finance in the three months to June, far above economists’ £16 billion forecast, and the first-quarter deficit was revised up to £22.3 billion from £16.9 billion. — Reuters