Slower growth than expected
Interest rate rise in doubt over weak GDP figures
The white-out froze the economy but was not wholly to blame for weak figures
An interest rate rise next month looks less than a certainty after Britain’s economy slowed much more sharply than expected in the first three months of 2018.
Heavy snow at the beginning of March contributed, but only partly, as the economy grew by just 0.1% in the first quarter, its weakest pace since the end of 2012.
The biggest fall in construction output – 3.3% – since the second quarter of that year was a more significant factor.
The slowdown saw the pound slide by around three quarters of a cent against the U.S. dollar, giving a boost to the FTSE100 index.
Rob Kent-Smith, a statistician at the Office for National Statistics, said: “While the snow had some impact, particularly in construction and some areas of retail, its overall effect was limited with the bad weather actually boosting energy supply and online sales.”
Economists and market watchers have considered it a near certainty that partly because of stronger wage growth the Bank of England would raise rates to 0.75% at the next meeting of its monetary policy committee on 10 May.
However, governor Mark Carney last week alluded to “mixed data” and the possibility of moving rates at a later meeting.
Commenting on today’s figures Chancellor Philip Hammond insisted the economy was still in good shape.
“Today’s data reflects some impact from the exceptional weather that we experienced last month, but our economy is strong and we have made significant progress,” he said.
“Our economy has grown every year since 2010 and is set to keep growing, unemployment is at a 40 year low, and wages are increasing as we build a stronger, fairer economy that works for everyone.”
John Hawksworth, chief economist at PwC, was less encouraged. “The UK remains firmly in the slow lane of global growth and these figures indicate a further loss of momentum in early 2018,” he said.
Marcus Wright, senior economist with RBS, believes the MPC may sit on its hands for another quarter. He said: “Digging underneath reveals things weren’t quite that bad. There was a big drag from the construction sector where output fell a whopping 3.3%, enough to wipe 0.2 percentage points off the headline figure.
“Growth in the all-important services sector was reasonable at 0.3% quarter on quarter. However, the consumer facing industries are still feeling the pain from the squeeze on household incomes. Bad weather in Q1 didn’t help either.
“What does the GDP figure mean for the prospects of rate hike next month? It certainly gives the Bank of England food for thought. It wouldn’t be surprising if some MPC members wanted to wait and see how the economy rebounds in Q2. And market pricing now indicates just a 25% chance of a rate hike next month, having been as high as 80% just last week.
“We’ll have to wait a little while for Scotland’s growth figure. But it’s very likely that it too had a very subdued start to the year with the weather playing a role. And Scotland went into Q1 with a bit less growth momentum than the UK, expanding by 0.3% in the final quarter of the year (0.4% for the wider UK).”