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UK economy beats expectations

Ben Brettell
UK

Good news from the ONS, with UK GDP estimated to have grown 0.5 percent in the final quarter of last year. Economists had expected a slower pace of expansion of 0.4 percent. As ever it’s worth noting that this preliminary estimate is produced using less than half the data which will eventually be available, and will be subject to revision in the coming months. Contributor Ben Brettell, Senior Economist – Hargreaves Lansdown.

The dominant services sector grew by 0.6 percent, contributing 0.45 percentage points to the overall total. Industrial production grew 0.6 percent, and within that figure was an especially strong showing from manufacturing, which grew output by 1.3 percent. Construction shrank once more, making it three consecutive quarters of contraction.

Yet despite better-than-expected number, the overall picture is one of muddling through. Growth still looks lacklustre – and somewhat unevenly distributed – with the year-on-year figure of 1.5 percent the weakest since the first quarter of 2013. But it’s certainly fair to say the economy has performed much better than many feared in the aftermath of the Brexit vote, boosted by the rising tide of a global recovery which has lifted all boats. Bank of England governor Mark Carney said in Davos recently that he expects the UK economy to ‘recouple’ with the global economy this year as Brexit negotiations provide greater clarity over our future trading relationship with Europe.

The Bank’s rate-setting committee will announce its latest decision on 8 February. With growth anaemic, I can’t see any rush to raise rates. Last year’s quarter point move seems like a tacit admission that the cut to 0.25 percent was unnecessary in the first place, rather than the start of a sustained upwards trend. I’d be somewhat surprised if we saw more than one rate rise this year, probably in the autumn.