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The British economy started the year on the backfoot, with GDP growth slumping worse than expected to its weakest pace in 12 months.
With higher inflation on the horizon, economists are warning today’s figures could be a harbinger of things to come. The 0.3 per cent expansion is a more than halving of the 0.7 per cent pace climb at the end of 2016 and below a 0.6 per cent forecast from the Bank of England for Q1.
Here’s what UK-economic watchers make of the numbers.
The figures are the first official signs of a slowdown in the consumer-driven spending that has proven surprisingly resilient since the Brexit vote, notes Andrzej Szczepaniak at Barclays.
He thinks the economy will lose further momentum as the year progresses and see the Bank of England stay unchanged on its record low interest rates.
The UK has only now begun to feel the beginning of the post-referendum slowdown.
Given the ascent of headline CPI (which we expect to peak at 3.1% y/y in June and August), the increasing likelihood of negative real wage growth in the coming months, the likely tightening of unsecured consumer credit over the coming quarters (which has of late supported resilience in household consumption), as well as the lowest savings ratio since records began, we expect that UK GDP growth will continue to decelerate over the course of 2017 as households are forced to tighten their belts.
Analysts at Fathom are particularly bearish on the UK’s growth prospects, forecasting GDP expansion of just 1.1 per cent this year – far lower than the 2 per cent expected by the BoE and IMF – and falling further to 0.4 per cent in 2018.
Ruth Gregory at Capital Economics is more sanguine, pointing to latest survey data from April which shows “a decent amount of momentum has carried through into Q2″:
This morning’s resilient consumer confidence figures offer support to our view that fairly strong employment growth, upbeat sentiment and loose monetary conditions should ensure that spending growth moderates, rather than collapses.
So although there are many challenges ahead – not least further rises in inflation this year – we don’t think any slowdown this year will be too severe.
Andrew Sentance, a former BoE rate-setter now at PwC, highlights some bright spots in manufacturing and financial services “which saw quite healthy growth in economic activity in the first quarter”:
But this was offset by a significant decline in output in retailing and other consumer-related services, alongside a small drop in the output of the transport and communications sector.
This is consistent with the other evidence we have received over the past month: a decline in retail sales, sluggish employment growth and a squeeze on purchasing power from rising inflation.
Analysts at Citi think the slowdown will prove “inconvenient” for prime minister Theresa May who is in full campaigning mode for the country’s snap general election in June and strengthen pro-EU voices:
It may embolden the pro-European political camp (Liberal Democrats and SNP) and “Remain” voters ahead of the 8 June elections. The slowdown also further weakens the UK’s negotiation position ahead of talks with the EU starting in July.
But Scott Corfe at the Centre for Economics and Business Research thinks it will have no impact on the Conservative government’s upcoming election plans:
The [government] can still point to the fact that GDP is just over 2% higher than a year ago, and that the unemployment rate is at its joint lowest level in over 40 years. And the Opposition has a severe economic credibility problem among voters.