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Not all doom and gloom on the UK economy

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26/01/2018
The UK economy grew at a faster rate than expected in the three months to the end of December, supported by the all-important services sector.

GDP grew by 0.5% in the fourth quarter of 2017, up on the 0.4% growth seen the previous quarter and ahead of analyst expectations of 0.4%.

The economy was supported by a recovery in the services sector, while agriculture and construction acted as a drag. The services sector is the largest part of the UK economy and, as such, its strength is encouraging.

Mark Carney, Bank of England governor, told The BBC this morning that the UK economy should start to ‘recouple’ with the world economy later this year in response to increasing clarity on the Brexit negotiations.

Adrian Lowcock, investment director at Architas, said: “The UK economy continues to be driven by its services sector with business and financial services growth improvement contributing to nearly half of the growth seen in the last quarter (0.28%). While services grew in the final quarter of 2017 the rate of growth has been slowing since the third quarter of 2016, driving down the overall rate of growth in the UK.

“The fact the rate of economic growth has been slowing down since just after the Brexit vote should not come as much of a surprise. Businesses do not like uncertainty and have clearly been withholding investment in the UK while negotiations got underway. However, the UK economy has not collapsed following the vote and while growth lags other developed markets, the country is still growing.”

Lowcock expects Brexit negotiations to continue to weigh on the economy again in 2018, but said if progress is made quickly on trade and businesses get more clarity on what a future post Brexit Britain looks like there is the potential for some of that delayed investment to be released which would provide a boost to UK GDP.

Richard Stone, chief executive of The Share Centre, said: “For personal investors, the stronger growth figures should result in improved company performance. This is particularly true for companies in the services and manufacturing sectors and it will be interesting to see how this economic data translates into company performance as results for 2017 are reported during Q1 2018.

“The data also means that expectations regarding interest rises may need to be adjusted. The market currently has an expectation of one increase in August. We continue to believe the UK economy will perform more strongly than expected and with earnings growth increasing, employment continuing to rise and inflation peaking, the Bank of England may well look to move rates higher more quickly with an initial rise coming earlier than August and the potential for a second rise later in the year.”

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