UK economic growth stronger than expected in final quarter of 2017, shows new figures

Numbers are better than initial predictions, but still indicate slow expansion say analysts 

Ben Chu
Economics Editor
Friday 26 January 2018 10:45
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Chancellor Philip Hammond on the fourth quarter GDP figures for 2017

The UK economy grew slightly more strongly than expected in the final quarter of 2017.

The figures were hailed by the Chancellor, Philip Hammond, as “very, very strong”, but the Office for National Statistics described the expansion as “slow and uneven”.

The preliminary estimate for Q4 GDP growth from the ONS was 0.5 per cent, ahead of the City of London expectation of 0.4 per cent growth.

That reading means calendar year growth for 2017 is estimated at 1.8 per cent, down slightly from the 1.9 per cent seen in 2016, but ahead of the 1.5 per cent growth forecast by the Office for Budget Responsibility(OBR) in the November budget.

“These are excellent figures, higher than market expectations, higher than the OBR’s prediction for 2017, suggesting that our 2017 overall growth will be upgraded,” the Chancellor Philip Hammond told Sky News in Davos.

“This underscores once again the resilience of the British economy as we go through this period”.

The ONS, analysing around 45 per cent of the total output data for the quarter, estimates that services, which account for the bulk of the economy, expanded by 0.6 per cent in Q4, up from 0.4 per cent previously.

Manufacturing jumped by 1.3 per cent for the second quarter in succession, helped by higher export demand and the lower pound.

But construction output is seen as dropping by 1 per cent, the third successive quarter of contraction for builders.

“Despite a slight up-tick in the latest quarter, the underlying picture is of slower and uneven growth across the economy,” said Darren Morgan of the ONS.

“The boost to the economy at the end of the year came from a range of services including recruitment agencies, letting agents and office management. Other services – notably consumer facing sectors – showed much slower growth.”

The UK’s better-than-expected end of year expansion comes at a time when growth rates in the rest of the G7 are being revised up even more strongly due to the booming global economy.

“The UK missed out on the global upswing as Brexit uncertainty weighed on economic activity,” said Kallum Pickering of Berenberg.

“Without Brexit, the UK would have probably expanded by [around] 2.5 per cent in 2017.”

Slight up-tick

However, sterling picked up by around 0.3 per cent to $1.4283 in the immediate wake of the data release, suggesting that some traders expect the stronger figure to nudge the Bank of England into raising interest rates again sooner.

“We are pulling forward our forecast for the next interest rate rise to August, from November,” said Samuel Tombs of Pantheon.

The OBR has forecast UK growth this year to slow to 1.4 per cent and 1.3 per cent in 2019, reflecting weaker household consumption due to higher inflation and weak investment from firms due to Brexit-related uncertainty.

The chair of the OBR, Robert Chote, said in an interview this week that the UK economy is “weak an stable”, in a twist on Theresa May’s description of her Government as “strong and stable”.

And the Bank of England Governor, Mark Carney, speaking at the World Economic Forum in Davos, said the UK economy is now 1 per cent smaller than the Bank forecast before the 2016 Brexit vote.

“What it works out to is tens of billions of pounds lower economic activity,” he told the BBC.

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