Which factors are contributing to economic growth being so poor?
The Office for National Statistics (ONS) has announced that GDP growth is down to 0.1% from last quarter’s 0.4%. This means that the first quarter of 2018 saw the UK economy at its slowest growth since 2012. Rob Kent-Smith, head of national accounts at the ONS, said: “Our initial estimate shows the UK economy growing at its slowest pace in more than five years, with weaker manufacturing growth, subdued consumer-facing industries and construction output falling significantly.”
So what’s to blame for this sluggish rate?
With many economists forecasting a first-quarter growth closer to 0.3%, these figures seem extreme, and there are many factors that have played into them. Brexit uncertainty has played its part; before the referendum, the UK was top of the global growth league of our main industrial competitors, whereas it now sits near the bottom. There haven’t been any abrupt changes concerning Brexit in the last three months, however, to explain this sharp drop in GDP.
Some point to the weather, with the ‘Beast from the East’ and its counterparts affecting the construction sector and causing up to 30 days to be lost on some building sites, thanks to the freezing conditions. The ONS, however, has labelled the impact of the weather as ‘generally small’, with demand even increasing in some sectors, such as energy.
John Hawksworth, Chief Economist at PwC, reminds us that, “these are only preliminary figures and are based largely on estimates rather than actual data for March, when the snow was at its worst. So there could be larger than usual revisions.”
The ONS are suggesting three reasons why the rate is so low. Firstly, construction had a very bad start to the year with a drop in output of more than 3%. Secondly, 2017 saw a strong performance by manufacturing with factory output up 1.3% at the end of the year. A slower Eurozone has led to weaker demand for UK exports. Thirdly, the low consumer spending power is affecting the service sector which accounts for around 80% of the entire economy but only showed 0.3% growth in the first quarter.
Whatever the reasons may be, Philip Hammond is remaining positive. He maintains that the economy has remained fundamentally strong, despite the setbacks that the weather has brought. Time will tell if his positivity continues when further figures become available.