UK economic growth drops to 0.3% as slowdown begins - business live
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Version 11 of 18. 12.49pm BST 12:49 The pound has not been rattled by the slowdown in UK growth. Instead, sterling hit a new seven-month high of $1.2957 after the GDP figures were released. The pound is now on track for its best month since the Brexit vote last June: As mentioned earlier, Bank of America Merrill Lynch has become the latest bank to revise its pound forecasts higher. BAML currency analyst Kamal Sharma told clients that The announcement of an 8th June general election was a game-changing event for sterling. Sterling will face Brexit challenges but its day of reckoning has been pushed further into the future.” BAML now expect the pound to bottom out at $1.25 in the current quarter and finish the year at $1.27, compared with their respective forecasts of $1.15 and $1.19 previously. 12.25pm BST 12:25 The chancellor has now tweeted about the GDP figures: Choice facing the British ppl: strong & stable Govt w/ T May to lock in econ progress vs J Corbyn's coalition of chaos-a risk to our economy 12.18pm BST 12:18 This chart, from CBI economist Alpesh Paleja, shows why the UK growth rate almost halved in the last quarter. Detailed sector breakdown of slower Q1 UK GDP growth. Weakening in consumer-facing sectors chimes with recent deterioration in real earnings pic.twitter.com/zi1B1QMWMl As you can see, the retail and hospitality sector (in green) had been a key driver of growth in October-December, but shrank in January-March. 12.02pm BST 12:02 The looming shadow of Brexit means the UK economy is unlikely to accelerate over the next couple of years, warns Morgan Stanley economist Melanie Baker. She writes: We expect this slower quarterly pace of growth to persist in 2017, reflecting our assumption that higher inflation will dampen real consumer spending growth and an assumption of subdued business investment as Brexit approaches As this chart shows, Morgan Stanley predict growth could inch up to 0.4% in April to June, but then dipping back to around 0.3%: 11.48am BST 11:48 John McDonnell MP, Labour’s Shadow Chancellor, has responded to the news that growth slowed to 0.3% the last quarter: “Today’s GDP figures reveal the threat to living standards under the Tories. “Growth for the first three months of 2017 was only half of what was expected. It comes on the back of new forecasts last week from leading independent forecasters showing growth and earnings expectations slashed and inflation revised up.” “There is no hiding from the truth. The Tories’ economic plan has undermined the UK economy and is a threat to working people’s living standards. “This General Election is a choice between a Labour Party who will stand up for the many and a Tory Party which only looks after the privileged few.” There’s not been much other reaction from the campaign trail; The Sun’s Tom Newton Dunn thinks he knows why.... The quietest day so far on the Tories election grid, nobody is out - coinciding with bad 0.3% GDP figure. This is no coincidence. 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. |