Economic growth in the UK slowed to 0.2 percent in the first quarter, a downward revision from the earlier estimate of 0.3 percent. The figures mark a sharp deceleration from the 0.7 percent growth recorded in the final quarter of 2016. The Office of National Statistics, which released the figures, pointed to rising prices linked to a fall in the value of the pound as a factor in the slowdown. The pound has fallen by around 20 percent since the UK voted to leave the EU, driving up the price of imported goods while wages have remained stagnant. This was reflected in the ONS figures which showed that “consumer facing industries such as retail and accommodation fell and household spending slowed.” The services sector, which relies on consumer spending, accounts for some 80 percent of the UK economy.
On a positive note, business investment grew by 0.6 percent in the first quarter and 0.8 percent compared to the same quarter last year, the first such growth since the final quarter of 2015. This too is likely linked to the fall in the pound which has made British exports cheaper, resulting in higher demand which is attracting more investment. Another sector that should benefit from a weaker pound, manufacturing, only grew at 0.3 percent in Q1; however, the month of April saw the fastest manufacturing growth in three years according to a survey of purchasing managers.
Indeed, looking at month on month figures rather than the quarter as a whole presents a less gloomy picture. April retail figures came in at a stronger-than-expected 2.3 percent, rebounding from a 1.4 percent fall in March. The service sector also grew at its fastest pace this year.
“High inflation is hitting consumers, but a weak pound and a recovering global economy are helping businesses,” Ian Stewart, chief economist at the consultancy Deloitte said to the Guardian newspaper. “UK growth is likely to tilt away from the consumer towards exports, manufacturing and investment this year. This should keep the UK economy growing at a similar rate to last year,” Stewart added