UK GDP growth slows to 0.3% in Q1

UK economic growth slowed at the start of 2017 to its weakest pace in a year, driven by a slowdown in the dominant services sector, according to official figures.

Quarterly GDP growth moderated to 0.3 per cent in the three months to the end of March from 0.7 per cent, just below an average forecast of economists collected by Bloomberg.

Year on year growth was 2.1 per cent higher, up from 1.9 per cent, but again just shy of a forecast of 2.2 per cent.

With UK growth having proven broadly resilient in the aftermath of the EU referendum last June, economists have warned that rising inflation should dampen the consumer spending that has powered the economy since last summer.

Still, the Bank of England and International Monetary Fund both expect annual UK GDP to expand 2 per cent in 2017.

The first quarter slowdown was driven by a pull back in growth in the UK’s dominant services sector, said the Office for National Statistics.

Services expanded by 0.3 per cent, down from 0.8 per cent at the end of 2016, with the ONS noting “falls in several important consumer-focused industries, such as retail sales and accommodation; this was due in part to prices increasing more than spending”. The service sector accounts for nearly 80 per cent of the economy.

Manufacturing was the best performing sector, growing 0.5 per cent, coupled with a 0.3 per cent expansion in agriculture and production. Construction grew 0.2 per cent.

With Britain having kicked off its Brexit talks and inflation still on the climb, growth could fall back further in the middle of the year, said Chris Williamson, chief economist at IHS Markit.

“A further lacklustre pace of growth is widely expected for the second quarter as political uncertainty and rising prices subdue demand”, said Mr Williamson.

James Smith, at ING, said: “After a remarkably strong run through 2016, the UK economy has started to slow as consumers cut back on spending.”

“This household squeeze is likely to be compounded by the effect of Brexit uncertainty, which may increasingly deter firms from hiring and investing. Whilst trade should perform better thanks to the weaker pound, we don’t expect this to be enough to prevent growth gradually slowing through this year”, added Mr Smith.