G7 rivals outpace UK as consumers rein in spending amid Brexit-fuelled price inflation
Britain’s economy grew at a slower rate than first thought in the final three months of 2017, leaving the UK lagging further behind other major economies as it prepares to leave the EU.
The Office for National Statistics revised down its estimate for UK growth in the fourth quarter to 0.4%, following an earlier estimate of 0.5% and missing economists’ forecasts that the rate would be unchanged.
It said UK production was lower than initially estimated, and said consumers were less willing to spend due to the price rises triggered by the sharp fall in the pound following the Brexit vote.
The weaker end to the year weighed on the economy’s performance in 2017 overall, with growth revised down from 1.8% to 1.7% – the weakest in five years. As the global recovery gathers pace, Britain is falling behind other major economies. The German economy grew by 2.2% in 2017, French GDP increased by 1.9%, and the US economy expanded by 2.3%.
“A number of very small revisions to mining, energy generation and services were enough to see a slight downward revision to quarterly growth overall,” said Darren Morgan, a statistician at the ONS.
“Services continued to drive growth at the end of 2017, but with a number of consumer-facing industries slowing, as price rises led to household budgets being squeezed.”
In the aftermath of the financial crisis, the UK economy was heavily reliant on consumer spending for growth, but the latest figures signalled a greater reluctance among UK consumers to spend money, with budgets squeezed by falling real pay, as inflation outpaces wage growth.
Household spending grew by just 0.3% in the fourth quarter and by 1.8% in 2017 overall, the slowest rate of annual growth since 2012.
Firms also appeared reluctant to spend, with business investment flat in the final three months of 2017.
The downward revision to growth came a day after the ONS published figures showing a surprise rise in unemployment in the three months to December.
The weaker-than-expected data creates a potential dilemma for the Bank of England, where policymakers signalled earlier this month the economy could be ready for another rise in interest rates as early as May.
“The latest GDP data suggest that the economy remains in a fragile state and does not need to be cooled with another rate rise as soon as May,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.