Source: The Guardian
The UK economy grew at a faster rate than initially thought in the first three months of 2018, raising hopes for a pick-up in growth after the sluggish start to the year.
The Office for National Statistics unexpectedly revised higher its third and final estimate for UK growth in the first quarter to 0.2%, after two earlier estimates of 0.1%.
Government statisticians said fresh figures from the construction industry and improvements for measuring the sector had nudged up the growth rate.
The pound rallied against the dollar on foreign exchanges on Friday, as City traders bet that the revision increased the likelihood that the Bank of England would raise interest rates from as early as August.
Threadneedle Street has consistently argued in recent months that the UK economy is stronger than official figures might suggest, which could support a rate rise to 0.75% from 0.5%.
Despite the better news for the economy, as Theresa May met her European counterparts on Friday in Brussels to discuss Britain’s exit from the EU, the ONS said household consumption remained subdued and business investment fell in the first quarter. Economists said this confirmed the UK economy remained weak in the first three months of the year.
Samuel Tombs , the chief UK economist at the consultancy Pantheon Macroeconomics, said: “Growth [was] revised up, but the details are worse than before.”
Even though there was a revision for the first quarter, officials said the annual rate of expansion for the economy was unchanged at 1.2% – the weakest level recorded since the year to the second quarter of 2012.
The ONS also downgraded the rate of growth for 2017 from 1.8% to 1.7%, meaning the UK was the only country from the G7 group of wealthy nations to record a slowdown last year.
There have been increasingly strident warnings that businesses could relocate jobs and investment to the EU after Brexit, with growing uncertainty over the type of deal ministers want to secure with Brussels. The latest figures showed business investment fell by 0.4% in the first quarter.
Britain’s dominant service sector contributed the most to the economy, with growth of 0.3%, while production output – which includes manufacturing, energy and other utilities – rose by 0.4%, having been revised down from 0.6%.
The construction industry’s output fell by 0.8%, an improvement from the previous estimate for a fall of 2.7%, although the quarter remained the worst for the building trade in more than five years.
After a rise in inflation after the Brexit vote and weak wage growth, families increased their borrowing during the first quarter, as real growth in their disposable incomes fell by 0.5%.
The household savings ratio, which estimates the amount of money families have to save as a proportion of their total disposable income, fell to 4.1% from 4.5% in the fourth quarter.
Torsten Bell, the director of the Resolution Foundation thinktank, said households responded to shrinking pay packets and squeezed incomes by choosing to save less and borrow more. “This makes sense as families cope with higher than expected price rises, but it’s not a sustainable one.”
Britain’s current account deficit, measuring the difference between payments into and out of the country, narrowed by £1.8bn to stand at £17.7bn – or 3.4% of GDP – in the first quarter.
The gap, which illustrates how dependent the UK is on imports, shrank – thanks to falling imports and rising volumes of exports.
John Hawksworth, the chief economist at PwC, said: “Growth could pick up a little further in 2019 as real wages recover, but risks are weighted to the downside given uncertainty around the outcome of the Brexit negotiations and the potential threat to global growth from an escalating US-led trade war.”