UK Economy Grows by 0.3% in Q1 as Higher Inflation Takes Its Toll

Posted by siteadmin on Monday 1st of May 2017.

Economists were expecting UK GDP growth to slow to around 0.4% in Q1 as consumers reduced their spending in response to rises in inflation. However, in preliminary growth estimates released on 28th April, the Office for National Statistics (ONS) reported a 0.3% growth rate for the UK economy in Q1 2017. This is the slowest growth rate since Q1 2016.

This lower than expected rate can be largely attributed to the slowdown in growth of the service sector, which fell to 0.3% versus 0.8% in Q4 2016. In Quarter 1 2017, there were falls in several important consumer-focused industries, such as retail sales and accommodation; this was due in part to price increases. Output in construction also weighed on growth after expanding by 0.2% in Q1 2017 following growth of 1% in Q4 2016.

Chief economist at IHS Markit, Chris Williamson commented: “The message is clear: the start of the year saw the weakest pace of growth for a year as rising prices have started to hit household spending.”

On a positive note, production, construction and agriculture grew by 0.3%, 0.2% and 0.3% respectively in Q1 2017 (see ‘UK Manufacturing sees strong growth in last quarter’ article) thanks to the competitive pound and improving global picture.

Chief investment officer at Close Brothers Asset Management, Nancy Curtin commented: “With the General Election just around the corner and Brexit negotiations afoot, any dip in the economy risks bringing further caution and uncertainty to businesses, which has a knock-on effect when it comes to investment and employment.

“However the Chancellor, with better than expected Budget tax receipts in his pocket, has room for manoeuvre and should be able to pre-empt any further slowdown which should help with business confidence.”