UK economic growth drops to 0.3% as slowdown begins - business live
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Version 8 of 18. 11.10am BST 11:10 TUC: UK faces living standards crisis TUC General Secretary Frances O’Grady fears that the alarm bells are ringing in the UK economy, now that the consumer slowdown is underway. “Today’s GDP figures do not bode well for the future. “Consumer spending has been propping up the UK economy. But with pay packets squeezed, families have less money to spend on the high street. “The next government cannot rely on household spending alone to drive growth, especially when another living standards crisis is on the horizon. “Politicians have long promised to rebalance the economy. They need to spell out at this election how they will deliver, starting with an industrial strategy that creates good jobs where they’re needed most.” But writing in The Times, Ed Conway suggests the Conservatives will play down economic issues in this election: GDP growth is at its weakest since the referendum. But the Govt doesn't care. My @thetimes column today: https://t.co/6y2v89X1NQ pic.twitter.com/4hikrBCdJB 10.57am BST 10:57 The slowdown in Britain’s economy will prevent the Bank of England raising interest rates until at least 2019. That’s according to analysts at Barclays, who have issued a good note on the GDP figures. They argue: In our view, given rising inflationary pressures and the increasing likelihood of negative real wage growth in the coming months, household consumption will continue to ease over the course of 2017. All in all, we believe this strengthens our view that the Bank of England MPC will leave its monetary policy stance unchanged over our forecast horizon (until end-2018). "The UK economy has begun to feel the post-referendum slowdown" so Bank of England to keep rates on hold until at least 2019 - Barclays Barclays also predict that the UK economy will keep slowing this year, as “households are forced to tighten their belts”. 10.41am BST 10:41 Kalum Pickering of Berenberg says we shouldn’t panic about the slowdown in the UK economy, even though growth halved in the last quarter: While the deceleration looks a little scary, the UK’s trend rate is around 0.4%. The expansion is entering its eighth year and the labour market is at full employment. Against this backdrop, growth with some volatility around its trend rate during the middle of the cycle is more than satisfactory. 10.35am BST 10:35 Via Berenberg Bank, here’s a neat chart showing UK growth by sector over the last decade: 10.29am BST 10:29 Suren Thiru, head of economics at the British Chambers of Commerce (BCC), believes Britain is entering a “sustained period of more sluggish growth”. June’s snap general election won’t help the situation, he warns: Inflation is expected to continue to rise, increasing the squeeze on consumer spending power and firm’s profit margins, pushing growth lower. The BCC’s own Quarterly Economic Survey confirms that inflation is a key risk to the UK’s growth prospects, with businesses under increasing pressure to raise prices. Uncertainty over the impact of Brexit and the distraction of a General Election are also likely to weigh on economic activity over the near term. 10.18am BST 10:18 Hammond: UK economy is resilient Chancellor Philip Hammond has just been interviewed about the GDP figures by Sky News, outside the Treasury. Hammond argues that the UK economy is in good shape, despite the slowdown in the last quarter. “Employment at record highs and it’s set to go higher still”, says Hammond, adding that “The British economy is resilient”. Q: But isn’t the slowdown in growth due to Theresa May’s Brexit plans? These negotiations will be “tough and complex”, Hammond replies. That’s why we need strong and stable leadership and a clear mandate, to get the best possible deal, he concludes. 10.05am BST 10:05 The slowdown in Britain’s service sector is worrying, because services firms make up around 80% of the economy. Dutch bank ING says households are being squeezed, and fears that Brexit uncertainty will compound the problem: The significance of today's weaker UK GDP growth:$GBP #Brexit pic.twitter.com/unwobSu6hi 9.58am BST 09:58 Katie Allen: Cost of living takes its toll Here’s my colleague Katie Allen’s take on today’s GDP figures: Britain’s economy slowed more than expected in the opening months of this year, with GDP growth slipping to 0.3% from 0.7% the previous quarter as the post-referendum rise in living costs took its toll on British households. The news adds to signs that the resilience seen for the UK economy in the wake of the Brexit vote is now waning and will come as a blow to Theresa May’s government as it banks on a solid victory in the snap election on 8 June. Economists had expected growth to slow more modestly to 0.4% in the first quarter, according to a poll by Reuters. The 0.3% growth rate was the slowest for a year. Statisticians said the biggest drag was the retail sector, echoing other signs shoppers are cutting back.... Click here for the full story: 9.56am BST 09:56 Scotia Bank: It's fair to blame Brexit Alan Clarke of Scotia Bank sums up the slowdown: To put the pace of growth into context, this is like driving away for the bank holiday weekend, hitting traffic and slowing from 70mph to 30mph… and it is starting to rain... Clarke also believes that Britain’s exit from the EU is responsible: This weakness is likely to be blamed on Brexit. That is probably fair, albeit in an indirect sense. The fears leading up to Brexit were that growth would stall due to a dive in confidence, hiring and investment. That hasn’t happened. What did happen is the pound dived, pushing inflation sharply higher and that is causing consumer spending and hence overall growth to slow. The good news is that the surge in inflation is probably temporary and the squeeze on growth should pass. However, it is probably going to take another year before growth on back on an upwards trajectory. 9.53am BST 09:53 UK economy slows: Instant reaction Nancy Curtin, chief investment officer at Close Brothers Asset Management, says that weak pay growth and the rising cost of living is hurting the UK economy. “After a GDP reading which defied expectation at the end of last year, all eyes were on the Q1 data to see whether the Brexit effect would have affected UK economic performance at the start of 2017. Rising inflation and slow wage growth have dampened consumer demand and reduced retail spending, which were helping drive growth last year after Britain’s vote to leave the EU. On the other hand though, the increased attractiveness of sterling in the wake of the referendum has boosted manufacturing and international exports, making headway in rebalancing the UK economy. Dean Turner, Economist at UBS Wealth Management, fears growth will remain modest this year. “Today’s print of 0.3% represents a sharp fall from the giddy pace of growth we witnessed a last quarter. Rising inflation seems to be having a negative impact on the parts of the economy exposed to the consumer. Looking ahead, we expect that pressure on real household incomes will keep growth subdued. Mark Sismey-Durrant, chief executive officer at Hampshire Trust Bank, blames economic uncertainty for the slowdown: “Today’s decline in GDP demonstrates the short term uncertainty being felt among both businesses and consumers. Businesses like certainty and with the impact of the snap General Election and the evolving EU negotiations, perhaps some economic impact is inevitable. However, we believe that the outlook offers room for optimism, based on the resilience the economy has demonstrated since the EU Referendum. Sky’s economics editor Ed Conway agrees that consumers are cutting back: Big drop off in retail activity the main explanation for the drop in GDP growth in Q1. Consumers no longer powering ahead pic.twitter.com/f2o2EHQiz8 ITV’s Noreena Hertz reckons Theresa May won’t be happy: Bad news for government. Gdp down to 0.3% this quarter. Was 0.7% last quarter. Economic slowdown looms. 9.45am BST 09:45 UK GDP: The key points Here are the key points from today’s report into the UK economy: UK gross domestic product (GDP) was estimated to have increased by 0.3% in Quarter 1 (Jan to Mar) 2017, the slowest rate of growth since Quarter 1 2016. Slower growth in Quarter 1 2017 was mainly due to services, which grew by 0.3% compared with growth of 0.8% in Quarter 4 (Oct to Dec) 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 prices increasing more than spending. Production, construction and agriculture grew by 0.3%, 0.2% and 0.3% respectively in Quarter 1 2017. GDP per head was estimated to have increased by 0.1% during Quarter 1 2017. 9.44am BST 09:44 Today’s GDP repost shows that Britain’s economy is suffering the impact of higher inflation. Retailers, hotels and restaurants all suffered falling growth, after being forced to hike prices due to higher input costs (because sterling fell sharply after the EU referendum). The ONS says: Retail trade and accommodation services were the main contributors to the negative growth in the distribution, hotels and restaurants sector. These industries were impacted by increases in prices. Updated at 9.47am BST 9.38am BST 09:38 UK service sector slows sharply Britain’s dominant service sector has suffered a significant slowdown in the last quarter. Services output expanded by just 0.3% in January-March, down from 0.8% in October-December. Industrial production grew by 0.3%, including a 0.5% rise in manufacturing output, construction expanded by 0.2% and agriculture grew by 0.2%. 9.34am BST 09:34 9.30am BST 09:30 UK GROWTH SLOWS Breaking! Britain’s economic growth slowed sharply in the first three months of this year. UK GDP expanded by just 0.3% in January to March, the Office for National Statistics says. That’s down from 0.7% in the final three months of 2016, and the slowest reading since the first three months of last year. More to follow.... 9.29am BST 09:29 A former top advisor to ex-chancellor George Osborne tweets: One of those GDP days when govt don't really mind either way - Strong: obviously good news. Weak: time for "strong & stable" leadership... 9.26am BST 09:26 Tension is building in the City, with just four minutes to go until the UK growth figures are released. Connor Campbell of SpreadEx says a surprise reading can’t be ruled out.... After surprising everyone with 0.7% growth in the final quarter of 2016, the UK is expected to have seen a sharp drop-off in Q1 2017, analysts estimating that the country’s economy expanded by just 0.4% across the first 3 months of the year. The GDP readings for the last few quarters, however, have tended to beat the Brexit-inspired gloom, so there is room for a shock this morning. 8.59am BST 08:59 Pound hits seven-month high Zing! Sterling has just hit its highest level against the US dollar since last September. The pound has jumped by 0.3% this morning to $1.2939, a seven-month high. It’s also a little higher against the euro, at €1.1881. The rally comes as Bank of America tears up its gloomy forecasts for the pound. It now predicts that sterling will average $1.25 this quarter, having previously expected it to slump to $1.15. Bank of America hikes its sterling forecasts to $1.32 by end of 2018: "The day of reckoning has been pushed further into the future" pic.twitter.com/nXrKm0gHsV 8.47am BST 08:47 Why GDP isn't perfect Gross domestic product is the economics world’s favoured way of estimating growth and output. But it’s not a perfect measure. GDP tries to pin down how well, or badly, a country is performing by estimating how much was produced, spent, and earned across its economy. It show the output across services, industry, construction and agriculture, household and government spending, business investment, and net trade. But it doesn’t show whether the economic growth is being shared fairly, whether it is reducing inequality or creating it, whether economic activity is environmentally harmful, or Robert F. Kennedy gave the definitive explanation of GDP’s flaws almost half a century ago, in a famous speech: It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans. |