UK growth remains slow, but services sector picks up
A deluge of UK data on Thursday confirmed economic growth slowed at the end of last year, though more timely figures show the services sector is beginning to pick up.
UK gross domestic product grew 0.4% in the fourth quarter of 2017 compared to the third, the Office for National Statistics said in its final reading on the measure, in line with its second estimate a month ago.
GDP growth slowed to 1.4% compared to the same quarter a year before from 1.8% in the third quarter, also as expected.
ONS's final reading provided a breakdown of expenditure components that made up GDP, though there were few changes.
Household spending growth was left unchanged at a subdued 0.3%, though growth in business investment was revised up from 0% to 0.3%, and the drag from net trade was thought to have been a little less.
ONS also noted that the households saving ratio hit a record low of 4.9% last year, while the current account deficit is now at 4.1% of GDP – its narrowest since 2011.
Fresher data from January shows the index of services rose 0.2%, up from 0.1% the month before, as expected. For the three-month period compared to the preceding three months, the index was up 0.6% from the revised 0.4% last reported.
February’s money and credit figures, also published on Thursday, revealed a pick-up in annual growth of bank lending to non-financial firms, from 3% to 3.2% and a £1.6bn monthly rise in consumer credit.
“Economic growth at the end of last year was unrevised with services and manufacturing continuing to drive growth," said ONS head of national accounts Rob Kent-Smith.
“Household borrowing increased throughout 2017, while their saving was the lowest on record. However, the UK’s deficit with the rest of the world shrank, as the UK received increased earnings on foreign investments thanks to a growing world economy.
“The services sector picked up in the three months to January 2018 with architecture, leasing companies and health work all boosting growth.”
Ian Stewart, chief economist at Deloitte, said: “Household spending power has been flatlining for the last two years. That has forced consumers to run down savings and borrow more just to sustain sluggish growth in spending.
“2018 should offer some relief, with falling inflation and stronger wage growth helping boost consumer spending power.”
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the rise in the index of services suggests that GDP was on track to have grown by 0.4% quarter-on-quarter again in Q1.
"Heavy snow in late February and early March, however, likely caused widespread disruption to output in the construction, retail and consumer services sectors. As a result, we still think that GDP growth likely slowed to 0.3% in Q1."
Paul Hollingsworth, senior UK economist at Capital Economics, felt the economy "appears to have had a reasonable Q1", though some of the early hard data has been "a bit weak".
While the severe weather will distort the profile somewhat, February’s money and credit figures suggests that consumers are still willing to borrow to smooth their spending despite the prospect of further interest rate increases, he said.
"In any case, with the real pay squeeze having come to an end, and sustained rises in real wages on the horizon, the outlook for spending growth remains bright. Note too that [figures from GfK] revealed a pick-up in consumer confidence in March. This supports our view that the economy will grow by around 2% this year, above the consensus estimate of 1.5%."