UK economy growing at slowest pace for five years - but Beast from the East isn't to blame
PUBLISHED: 10:27 27 April 2018 | UPDATED: 10:27 27 April 2018
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A significant drop in construction work and sluggish manufacturing activity have contributed to the British economy recording its slowest paced growth for five years.
Gross domestic product (GDP) grew by 0.1% between January and March, according to an initial estimate from the Office for National Statistics.
It was worse than the slowdown to 0.3% predicted by economists, and represents the weakest quarterly growth since the end of 2012.
While many thought the so-called Beast from the East would have hit Britain’s economy hardest, figures showed that recent snowfalls had a relatively small effect on growth.
ONS spokesman Rob Kent-Smith said: “Our initial estimate shows the UK economy growing at its slowest pace in more than five years, with weaker manufacturing growth, subdued consumer-facing industries and construction output falling significantly.
“While the snow had some impact on the economy, particularly in construction and some areas of retail, it overall effect was limited with the bad weather actually boosting energy supplies and online sales.”
The pound tanked against the dollar following the news, falling 0.7% to 1.38 US dollars. Against the euro, sterling was down 0.3% at 1.14 euros.
Construction was the biggest drag on GDP, having experienced its most dramatic fall since the second quarter of 2012 – dropping 3.3% over the first three months of the year.
Manufacturing growth slowed to 0.2%, but this was partially offset by a rise in energy production due to colder weather.
The UK’s powerhouse services sector – which accounts for around 79% of the economy – was the biggest supporter of GDP growth in the first quarter, having increased by 0.3%.
However, the longer term trends point to weakening of service sector growth.
It comes amid a squeeze on consumer finances from higher inflation, triggered by the Brexit-induced collapse in the pound, and slow wage growth.
The UK economy is still struggling to bounce back to levels seen in the final quarter of 2016 when GDP rose by 0.6%.
The economic slowdown is likely to play a part in determining the course for interest rates this year.
Rate-setters will also have to consider recent easing in inflation rates, with the Consumer Price Index (CPI) of inflation having dropped back from 2.7% to 2.5% in March - marking a one-year low.
Bank of England Governor Mark Carney has already warned markets that a rate rise in May is not a certainty.