UK GDP growth revised down after fall in spending

Alicia Cross
February 25, 2018

GDP growth for the three months to December was downgraded from 0.5 per cent to 0.4 per cent by the Office for National Statistics in its second estimate.

City analysts had anticipated no change in the estimate.

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

The number of people in work rose 88,000 sequentially to 32.15 million. That meant a bigger slowdown from the 1.9 per cent expansion seen in 2016, and the slowest since 2012.

In year-on-year terms, downwardly revised growth of 1.4% was the weakest in more than five years.

In contrast, United Kingdom employment rose by 88,000 as the rate climbed from 75 to 75.2 per cent between October and December. Businesses, too, have taken a more cautious approach on investment as they seek clarity over the post-Brexit economic landscape.

The UK jobless rate increased for the first time in almost two years in the fourth quarter and wages grew at a steady pace.

Sterling remained under pressure following the update, slipping 0.2 per cent against the United States dollar at 1.38.

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Yael Selfin, chief economist at KPMG in the United Kingdom, said: "There are signs that average weekly earnings, which rose by 2.5% in the fourth quarter, are beginning to respond to the tightness of the labour market, although households are still feeling the squeeze when accounting for inflation, with real earnings falling by 0.3%".

"This factor continued to dampen consumer spending growth in the second half of 2017, but was offset by a stronger world economy, which boosted United Kingdom exports in areas like manufacturing and financial and business services".

Yesterday the Bank of England's chief economist Andy Haldane warned it might be forced to hike rates at a faster pace than first thought if inflation, global growth and the United Kingdom economy picked up speed.

Further, momentum in wage growth makes a May rate hike all the more likely, although the latest employment data is a little more concerning, the economist noted.

The Bank also forecast in its February inflation report (Page 34, table 5.B) that UK GDP will grow by 1.7% in the year to the end of March 2018, suggesting it expects Thursday's revised pace of growth to prevail in the first quarter of 2018.

Sterling was essentially flat against the dollar in the wake of the data at $1.3896.

"With the United Kingdom sliding to last place in the G7 economic leaderboard for 2017, early indications are that 2018 is off to a slow start too".

In comparison, January of 2017 saw a 19.1 per cent boost to e-commerce spending, which shows just how much the market has decelerated in the past 12 months.

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