The UK economy slowed more-than-expected during the first quarter of the year as the dominant services sector posted its weakest growth in two years. GDP expanded by 0.3% quarter-on-quarter in the first three months of the year, slightly weaker than forecasts of 0.4% and sharply down from the prior quarter’s 0.7% rate.
On an annual basis, growth improved from 1.9% in the fourth quarter to 2.1% in the first quarter. Expectations were for a year-on-year figure of 2.2%. Nevertheless, that is the highest rate since the second quarter of 2015 and most forecasts for yearly growth have been revised up. The Bank of England expects growth to average 2.0% in 2017 as the British economy continues to defy the gloomy post-Brexit predictions, even with the current soft patch. In 2016, GDP expanded by 1.8%, the second highest among the G7 after Germany.
The main reason for the weakness in the services sector was a cutback in spending by British consumers, which impacted several service industries. The distribution, hotels and restaurants sector contracted by 0.5% during the quarter, being led by a decline in retail sales. Data out last week showed UK retail sales fell at the fastest pace since 2010 as higher consumer prices (following sterling’s devaluation) combined with muted wage growth hurt households’ spending power.
Overall, the services sector grew by just 0.3%, down from 0.8% in the previous quarter. The strongest growth came from the manufacturing sector as the fall in the value of the pound after June’s Brexit referendum boosted UK exports. Manufacturing output was up 0.5% during the quarter, but construction output also slowed to rise by just 0.2%.
The pound fell back slightly ahead of the data before resuming the uptrend that began on April 18 after the UK Prime Minister, Theresa May’s surprise announcement of a snap general election. Most analysts see an early election as an opportunity for May to increase her party’s majority in parliament, boosting her negotiating hand with the EU as well as silencing her critics in her own party. Sterling was attempting to reach 1.30 dollars in European trading today as it climbed to 7-month highs above 1.2950 dollars.
Origin: XM
