Experienced Investor
UK GDP slowdown; reactions
With just nine days to go before the 2015 General Election, figures released by the Office for National Statistics indicate that UK growth during Q1 was 0.3 per cent – the weakest level of growth recorded since Q4 2012. Chancellor George Osborne heralded the figures as “good news”, noting “this is a critical moment and a reminder you can’t take recovery for granted.”
However, reactions from many were decidedly mixed. Shadow Chancellor Ed Balls said that “while the Tories have spent months patting themselves on the back, these figures show they have not fixed the economy for working families.”
Steve Barwick of the New Policy Institute likened the UK economy to a four cylinder car – “and not one of its four cylinders is firing as smoothly as it should.”
“Productivity is in the doldrums. Employment is artificially high due to self-employment. Household income growth has been non-existent. Trade deficits are frighteningly high,” Barwick concluded. “Look beneath the bonnet and we find the UK economy both weak and unbalanced.”
Vicky Redwood of Capital Economics forecasts that the slowdown will be a temporary blip, and doubts that “recovery is on the cusp of a sustained slowdown.” She pointed to wage growth, and positive surveys of business sentiment, that point to “growth of around 3 per cent this year as a whole.”
Kevin Caley, Managing Director of ThinCats, noted that “in comparison with European counterparts, like Germany and France, the UK’s growth rate is outperforming.” Despite this, however, Caley called for a “real focus on improving the UK’s investor appeal,” using initiatives such as the proposed peer to peer ISA.
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Anna Stupnytska of Fidelity hoped the economy would pick up momentum in the latter two quarters of this year, The strength of the pound, however, particularly against the euro, will remain a drag on growth this year. With inflationary pressures subdued for a bit longer, the BoE is still unlikely to deliver its first hike this year.”
Helal Miah of The Share Centre recorded that the 0.3 per cent growth was a “fairly significant miss” for analysts, given consensus projections pointed to growth of around 0.5 per cent. “These numbers are a disappointment to the market and the weakest quarterly growth since the end of 2012.”
Investors, Miah believes, “should note that the immediate impact was a moderate fall in sterling.” She speculates the figures may further delay a rate increase, but the larger impact “will be on the election campaign…Labour will no doubt say that the recovery is not as strong as the Conservatives have claimed.”
“However,” Miah records, “we do not believe that this reflects a change in the direction of economic growth. Investors should acknowledge that the economy still is in good shape which should be helped by lower oil prices, with better expectations for some of our main trading partners including Europe.”
Andy Scott of HiFX said it was important to look at the bigger picture; “there’s still plenty to be upbeat about – consumer confidence riding high. As highlighted by the Bank of England’s last minutes, the Eurozone is now showing signs of recovery and as our biggest trading partner, this bodes well for increased external demand. Whilst today’s data will support the view for UK rates to remain on hold this year, we still expect sterling to strengthen against the U.S. dollar this year.”
CBI director-general John Cridland said that while growth has certainly slowed, “checking the temperature with our members and surveys hints that the economy is more resilient than these figures might suggest.”
“Prospects for this year remain bright, with lower oil prices and inflation continuing to support growth,” Cridland continued. “A strengthening pound means manufacturers are fighting a loss of competitiveness in the euro area, threatening to knock our exports performance.”