United Kingdom economic growth rate slows in first quarter

United Kingdom economic growth rate slows in first quarter

The performance of the economy was much worse than the Bank of England had been expecting and nearly certainly puts paid to any chance of an interest rate rise when the monetary policy committee meets early next month.

Analysis from economists at PwC earlier this month said that GDP growth could fall as low as 0.2 per cent for the first quarter, down from 0.4 per cent at the end of previous year. Against the euro, sterling was down 0.3% at 1.14 euros.

United Kingdom growth slowed much more sharply than expected in the first quarter, sending the pound to its lowest since March 9 against the dollar GBP= and raising questions about whether the Bank of England will raise rates next month.

Given there is what Scottish Secretary David Mundell described as a worryingly "significant gap" between growth in Scotland and across the rest of the United Kingdom, then the figures for Scotland's Q1 GDP could be even worse; possibly going negative.

It was worse than the slowdown to 0.3% predicted by economists, and represents the weakest quarterly growth since the end of 2012.

Rob Kent-Smith, head of national accounts at the ONS, said: "Our initial estimate shows the United Kingdom economy growing at its slowest pace in more than five years with weaker manufacturing growth, subdued consumer-facing industries and construction output falling significantly".

Chris Williamson, chief business economist at IHS Markit, said the slowdown could not just be blamed on the bad weather seen in February and March, as the "Beast from the East" brought unseasonably low temperatures and snowfall to the the UK.

The UK's powerhouse services sector - which accounts for around nearly 80 per cent of the economy - was the biggest supporter of GDP growth in the first quarter, having increased by 0.3 per cent thanks in part to business services and finance.

That marked the slowest pace for more than five years and compared with expansion of 0.4 per cent in the final quarter of 2017.

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Manufacturing growth slowed to 0.2% while production increased 0.7% and energy production rose due to the below-average temperatures.

However, the ONS noted that longer term trends pointed to weakening growth in the services sector.

Economic growth data may prove market-moving for the British Pound ahead of the weekend as it will cement expectations as to whether or not a May interest rate rise is on.

Despite the weak data, UK GDP has now grown in 21 consecutive quarters, with the last fall coming during the post-Olympic economic contraction.

It comes amid a squeeze on consumer finances from higher inflation, triggered by the Brexit-induced collapse in the pound, and slow wage growth.

Given the near-stagnation in the first quarter, expectations that the Bank of England will raise its main interest rate by another quarter-point on May 10 have been sharply reduced, if not quite extinguished.

Bank of England Governor Mark Carney has already warned markets that a rate rise in May is not a certainty.

Recent data showed United Kingdom inflation unexpectedly slowed in March 2.5 per cent - the lowest level in a year - undermining the urgency of raising rates.