UK economy was relegated to seventh place in the G7 league for 2017, but some hope was revealed in the latest data.
The data is out, and at first glance it tells a sorry story. The stats recording changes in UK GDP in Q4 have been revised. It turns out that UK plc grew by 0.4 per cent in the final quarter, compared to the previous quarter, from 0.5 per cent previously estimated. To rub salt into the wound, the ONS also revised its estimate for growth in the first quarter, down from 0.3 to 0.2 per cent (quarter on quarter) .
The revision means that based on the data which we currently have, the UK was the slowest growing economy in the G7 in 2017, from the fastest growing the year before.
If you want the detail, the UK grew by 0.3 per cent in both Q1 and Q2, by 0.5 per cent in Q3 and by 0.4 per cent in Q4.
So that’s worrisome.
Looking ahead, Samuel Tombs, from Pantheon Macroeconomcis said: “So far, indicators suggest that the economy has slowed a little in Q1. The weighted-average PMI (purchasing managers index) declined in January and is consistent with GDP growth of just 0.3 per cent quarter-on-quarter in Q1 on 2018. In addition, retail sales volumes were 0.5 per cent below their Q4 average in January. Timely indicators of housing market activity also have been particularly weak. For now, we’re sticking with our forecast for a 0.4 per cent quarter-on quarter rise in GDP — a huge rebound in oil production, after the closure of the Forties pipeline in December, will help — but the risks are skewed to the downside.
Andrew Wishart, UK Economist, at Capital Economics was less downbeat about 2018, saying: “Most forecasters expect GDP growth to slow further this year (the consensus is 1.5 per cent annul growth). However, with inflation set to drop back – easing the squeeze on households’ real incomes – investment intentions remaining strong, and exporters still benefitting from a weaker pound, we expect annual GDP growth to strengthen to 2.0 per cent.”
And that takes us to the one piece of good news, lurking in the data. Investment saw a nice jump in the quarter, up 1.1 per cent onthe previous quarter and up 3.9 per cent over the year, the fastest growth rate since 2014.
Chronic lack of investment has been the UK’s biggest weakness in recent years, if the Q4 experience with investment can be repeated throughout 2018, then that will be good news and may build the foundations for the much needed improvement in productivity.