Growth picked up slightly in the final quarter of 2015 but Britain’s economy remains reliant on the services sector for its impetus.
The Office for National Statistics reported that GDP expanded by 0.5 per cent, slightly up on the 0.4 per cent rise in the third quarter. “These figures show Britain continues to grow steadily,” said Chancellor George Osborne. “Despite turbulence in the global economy, Britain is pushing ahead.”
But City analysts noted the expansion was entirely powered by a 0.7 per cent increase in services output, while manufacturing and construction were both a drag on performance. And the annual rate of growth in the quarter fell to 1.9 per cent, down from 2.1 per cent previously and the lowest in two years.
“The figures demonstrate that the recovery remains fragile,” said David Kern of the British Chambers of Commerce. “While the services sector continues to grow, production is close to stagnation and the construction sector is in recession. Every effort must be made to support both these sectors as we seek to rebalance the economy.”
Vicky Redwood, of consultancy Capital Economics, added that the UK faced a number of headwinds this year, including more fiscal austerity and the European Union referendum. “We doubt we will see a pick-up in growth this year,” she said.
Full-year GDP growth for the UK in 2015 was 2.2 per cent, against 2.9 per cent in 2014. Total GDP is now 6.6 per cent above its pre-crisis peak in the first quarter of 2008, but the ONS survey shows the extent to which services, accounting for 80 per cent of the economy, is responsible for that uplift.
Services output is 11.6 per cent above the level of seven years ago, while construction output is still down 4.2 per cent and manufacturing is 6.4 per cent lower. In 2011, Mr Osborne said he wanted to see a “march of the makers” in Britain, but manufacturing output has not grown since the final quarter of 2014.
The economy is expanding below the trend expansion rate assumed by the Bank of England and other forecasters. Analysts said the figures were another reason why the Bank’s monetary policymakers would not put up interest rates in the near future.
“With inflation pressures looking benign, the Bank of England has greater scope to keep rates low for longer to wait for uncertainty surrounding Brexit to decline,” said James Smith, of ING. “With this in mind, we retain the view that the Bank of England will not hike rates until November at the earliest.”
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