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UK economic growth revised downwards, but investors shouldn’t panic

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Written by: Adam Lewis
25/05/2017
The rate at which the UK economy grew in the first quarter of the year has been revised downwards, official figures revealed today.

Last month the Office for National Statistics (ONS) published its first estimate for UK GDP growth, which suggested the economy had expanded 0.3% in the first three months of the year. In its second of three estimates it today revealed this rate of growth had slowed to 0.2%.

This compares with the 0.7% growth which was recorded in the fourth quarter of 2016, with the ONS attributing the slowdown to “broad-based downward revisions within the services sector”.

Commenting on the revision, Michael Baxter, economics commentator at The Share Centre said: “It seems that the UK economy has been hit by the rising cost of living, largely caused by Brexit-related falls in sterling, and rising input prices worldwide.  Retail and accommodation took a particularly large knock, but it was a bad quarter for manufacturing and construction too. This was in marked contrast with the final quarter of last year, which saw 0.7% growth.

“Investors, however, need not worry too much about the poor performance in Q1 as to a large extent this is already reflected in share prices. Of more relevance is whether the apparent improvement in April continues.”

Adrian Lowcock, investment director at Architas, said the fact that household consumption has fallen so much is cause for concern for policy makers as consumer spending is critical for economic growth in the UK.

“Households have now become used to low interest rates while wages have failed to keep up with the recent spike in inflation. The overall impact is many households have seen a drop in their disposable income and have reigned in their spending to reflect this,” he said.

Lowcock added: “Investors shouldn’t read too much into the GDP figures. They followed a stronger than expected quarter at the end of 2016 and it has been difficult to forecast the effect last year’s Brexit vote has had on the UK economy. However, the main drivers of the recent rise in inflation, rising oil prices and falling pound, are beginning to work their way through the annual inflation calculation. As such we believe inflation is close to its peak and will ease back.”

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