Bad weather expected to hit economic growth

EXTREME WEATHER is expected to have knocked UK economic growth in the first three months of 2018, with analysts predicting frosty readings from official figures on Friday.

Economists are forecasting that the so-called ‘Beast from the East’ sent gross domestic product (GDP) growth from 0.4 per cent in the fourth quarter to 0.3 per cent, but some predict the figure has halved to 0.2 per cent. An Investec economist team led by Philip Shaw is among those taking a more pessimistic view on figures set to be reported by the Office for National Statistics (ONS).

“The UK faced periods of fierce snow in February and March which seem likely to weigh on quarter one GDP. Ahead of the release of preliminary data we expect an outturn of +0.2 per cent, with a bias to the downside.”

It echoes predictions by EY ITEM Club for 0.2-0.3 per cent growth, and chimes with that of PwC and the National Institute of Economic and Social Research (NIESR), which have also pencilled in similar levels of reduced growth.

Retailers bore the brunt of the extreme weather, which saw people stay away from the high street. This was reflected in official figures out earlier this month, which showed that retail sales recorded their biggest quarterly fall in a year. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said high-street woes could have translated to slowdown in services output to 0.3 per cent from 0.4 per cent in the fourth quarter. He said: “Admittedly, a jump in energy demand likely ensured that industrial production rose by 0.8 per cent, contributing 0.11pp (percentage points) to GDP growth. But the bad weather likely meant that construction output subtracted about 0.17pp.”

The economic cost of the snowfall will also play a part in determining the course for interest rates this year. Governor of the Bank of England Mark Carney set the cat among the pigeons by stating that data in Q1 had been ‘mixed’ and that this would be discussed at the MPC’s May meeting, Investec said.