Economy slowed less than feared in first quarter

THE economy slowed less than feared in the first three months of the year, a revision to official figures has shown.

The Office for National Statistics (ONS) said that the upgrade in economic performance was thanks to a change in how it measures the construction sector. This part of the economy was now believed to have contracted by 0.8pc, rather than the previous dire estimate of 2.7pc.

As a result the economy grew by 0.1 percentage points more than thought, with gross domestic product (GDP) expanding by 0.2pc at the start of 2018. This was still half the rate of quarterly growth seen in the last six months of 2017.

The upgrade followed the Bank of England’s decision not to raise interest rates in May and June, citing signs of softer growth. The Bank said that it expected the ONS estimate to be revised upwards in coming months and that there would be a rebound in growth following poor weather at the start of the year. However, it predicted a larger revision, to 0.3pc for the first quarter and full-year growth of 1.4pc.

The improved data will add to market expectations of an August rate rise, with 63pc betting on a hike.

Household spending grew by 0.2pc in the first few months of the year, the ONS revealed. This appears to have been funded through savings, rather than earnings. The savings ratio fell by 0.4 percentage points to 4.1pc, its lowest level since the start of 2017.

Figures released by the Bank also showed a £1.4bn uptick in consumer borrowing in May, while the number of mortgage approvals also rose slightly, by 2.5pc on April, to 65,000.

Ruth Gregory, of Capital Economics, said: “Despite the upward revision to quarterly GDP growth, the breakdown left the economy looking a little more fragile than before. But there are still reasons to be optimistic about the growth outlook.” Ms Gregory noted that more recent figures showed “the economy had gained more pace” from April to June. Services, which make up the greatest share of UK economic activity, showed a 0.3pc rise in monthly output.

Meanwhile, a 1.6pc slump in German retail sales in May – the biggest drop in seven years – fuelled concerns about growth in the continent’s largest economy. Earlier this month, the Bundesbank cut its 2018 growth forecast from 2.5pc to 2.0pc