United Kingdom: Growth picks up in the final quarter of 2017
The British economy strengthened in the final quarter of 2017, according to preliminary data released by the Office for National Statistics (ONS) on 26 January. Growth came in at 0.5% quarter-on-quarter, up from 0.4% in Q3 and overshooting market expectations of a 0.4% rise. Q4’s print was also the strongest reading in 12 months. Despite the improved Q4 performance, annual GDP growth dipped to 1.8% in 2017, down marginally from an upwardly revised 1.9% in the prior year (previously reported: +1.8% year-on-year) and the smallest expansion since 2012.
Growth in the fourth quarter was driven by a solid performance in the service sector (Q4: +0.6% quarter-on-quarter; Q3: +0.4% qoq), underpinned by strong showings in the business services and finance, and transport, storage and communication sub-sectors. In contrast, consumer-facing areas such as hotels and restaurants fared less well. This was in line with other indicators, such as lackluster retail sales and depressed consumer confidence. It also came as households’ real incomes continued to be squeezed by high inflation. Industrial production grew 0.6% (Q3: +1.3% qoq), with a robust expansion in manufacturing partially offset by a contraction in the oil gas sector due to maintenance work. The construction sector shrank for the third straight quarter (Q4: -1.0% qoq; Q3 -0.5% qoq), with Brexit uncertainty likely playing a role in dampening property investment.
The economy is projected to lose some stream this year. Fixed investment growth looks set to soften, particularly as the UK’s future relationship with the EU remains decidedly murky. Private consumption will be hit by continuing pressure on wages, and already-low savings rates will limit households’ ability to compensate for weak earnings by running down savings. The external sector will, however, provide some support thanks to health global demand.