United Kingdom: Growth revised down for Q4 2017
February 22, 2018
The UK economy grew at a slower pace than initially thought in the final quarter of 2017, according to comprehensive data released by the Office for National Statistics (ONS) on 22 February. Growth came in at 0.4% quarter-on-quarter, down from a revised 0.5% in Q3 (previously reported: +0.4% quarter-on-quarter) and below the preliminary estimate of 0.5%. Annual GDP growth was 1.7% in 2017 as a whole, down from the preliminary estimate of 1.8% and marking the smallest expansion since 2012.
Growth in the fourth quarter was driven by solid fixed investment growth (Q4: +1.1% qoq; Q3: +0.7% qoq) on the back of expansions in the general government and private dwellings sub-sectors. In contrast, business investment was fairly flat, with Brexit uncertainty likely weighing on investment decisions. Government consumption grew at a robust pace (Q4: +0.6% qoq; Q3: 0.0% qoq). However, tepid private consumption dampened the overall performance, as households continued to be squeezed by high inflation and low wage rises (Q4: +0.3% qoq; Q3: +0.4% qoq). This was in line with weak retail sales figures and depressed consumer confidence throughout the quarter.
The external sector disappointed in Q4. Exports dipped 0.2% from the previous quarter (Q3: +0.2% qoq), while imports picked up (Q4: +1.5% qoq; Q3: +1.0% qoq), in part due to higher imported fuel prices. As a result, the external sector’s net contribution deteriorated from minus 0.2 percentage points in Q3 to minus 0.5 percentage points in Q4.
The economy is projected to lose some stream this year. Fixed investment growth will likely soften, particularly as the UK’s future relationship with the EU remains decidedly murky. Private consumption will be hit by a continuing squeeze on wages, and already-low savings rates will limit households’ ability to compensate for weak earnings by running down savings. The external sector should, however, provide some support thanks to robust global growth.
UK GDP Forecast
The Central Bank revised up its growth forecasts at its February meeting, and now expects the economy to expand 1.8% in both 2018 and 2019. FocusEconomics panelists take a less optimistic view, and project that GDP will expand 1.4% in 2018 and 1.4% again in 2019.
Author: Oliver Reynolds, Economist