UK economy defies gloom with 1.8pc growth in 2017

30-01-2018

Britain’s economy grew faster than expected in the last three months of 2017, although its annual growth was still the lowest in five years.

UK GDP rose 0.5pc in the fourth quarter and 1.8pc in the full year compared with 2016, according to preliminary figures from the Office of National Statistics.

Growth was driven by the dominant services sector, with business services and finance helping to boost the sector by 0.6pc compared to the third quarter.

Economists had forecast growth to be 0.4pc in the fourth quarter and 1.4pc for the year.

The ONS said: "Despite services growth in the most recent quarter, quarterly growth compared with the same quarter a year ago showed a weakening, particularly in the more domestic consumer-facing type sectors."

Those consumer-facing sectors include hotels, catering, transport, storage and communications. Within those, the accommodation, motor trades and film industry were particularly weak.

     

Industry recorded 0.6pc growth thanks to another strong quarterly showing by the manufacturing sector. Growth could have been higher but for a “significant fall” in oil and gas extraction due to an outage in supply from the Forties pipeline from the North Sea. Across the year, industry grew 2pc.

Ian Stewart, chief economist at Deloitte, said that the "strong global recovery and a weak pound" had been factors that boosted UK exports and manufacturing.

The construction sector did not do as well, contracting for the third quarter in a row with a 1pc dip. For the full year it grew 5.1pc compared to 2016, boosted by a strong start to 2017, the ONS said.

Ben Brettell, senior economist at Hargreaves Lansdown said: "The economy has performed much better than many feared in the aftermath of the Brexit vote, boosted by the rising tide of a global recovery which has lifted all boats."

But he remained cautious: "Despite today’s better-than-expected number, the overall picture is one of muddling through."

Lucy O’Carroll, chief economist at Aberdeen Standard Investments, said that although the quarterly growth was higher than expected, it "doesn’t change the overall growth story". She said that, at its weakest in five years, 2017's growth had been "disappointing".

“This is not impressive for a small, open economy that would normally expect to be benefiting from 2017’s healthy global pick-up," she said.

Ms O'Carrol said the figures underline "the IMF’s stark message earlier this week: the world economy is doing very nicely, the UK economy less so".

Nancy Curtin, chief investment officer at Close Brothers Asset Management, said: “Productivity remains a key challenge to unlocking a healthier economy."

She said that "while a recent leap in productivity to its fastest rate in six years is encouraging, further investment from both the public and private sector is required".

At the World Economic Forum in Davos this week, Bank of England Governor Mark Carney said that he expected the UK economy to "recouple" with the global economy in 2018 as Brexit negotiations provide more clarity over the UK's future trading relationship with Europe.

Mr Brettell said that, with the Bank of England's interest rate-setting committee due to announce its latest decision on February 8, he did not expect a "rush" to raise rates due to "anaemic" growth.

"Last year’s quarter-point move seems like a tacit admission that the cut to 0.25pc [in 2016] was unnecessary in the first place, rather than the start of a sustained upwards trend. I’d be somewhat surprised if we saw more than one rate rise this year, probably in the autumn," he said.

Deloitte's Mr Stewart expects 2017's growth trend to continue into this year.

"With inflation pressures starting to ease we expect 2018 to see another year of unspectacular, but far from disastrous, UK growth,” he said.

Source: The Telegraph