Britain’s economy was weaker than previously thought in 2017, official data showed on Thursday, leaving the country lagging further behind the global recovery as it prepares to leave the European Union. The downgrade of the full-year and fourth-quarter growth rates also raised questions about the strength of the economy as the Bank of England prepares to raise interest rates.
Gross domestic product growth slowed to a quarterly 0.4 percent from a previous estimate of 0.5 percent, wrong-footing economists and reducing 2017 growth as a whole to 1.7 percent, its lowest since 2012. This was still stronger than most economists feared immediately after Britain voted to leave the EU in June 2016. But the country has relied heavily on the unexpectedly robust global economy to sustain its economic growth while consumers have been squeezed by higher inflation caused by the fall in the pound after the Brexit vote. Sterling was little changed after Thursday’s data and government bond prices rose slightly.
Alan Clarke, an economist at Scotiabank, said the figures showed Britain’s economy was growing at roughly the pace the BoE sees its new, lower speed limit, meaning a rate hike was still on the cards. But Samuel Tombs, at Pantheon Macroeconomics, said the data showed the central bank should delay any action for now. “The latest GDP data suggest that the economy remains in a fragile state and does not need to be cooled with another rate rise as soon as May,” he said in a note to clients.
BoE Governor Mark Carney said this month that rates would probably need to rise sooner and by somewhat more than the central bank had thought in November, when it raised borrowing costs for the first time in a decade. Most economists think rates will rise again in May, and financial markets expect a further increase, to 1 percent, by the end of the year.
Britain’s year-on-year economic growth of 1.4 percent in the last three months of 2017 was not just its weakest in five years but also the weakest of any of the economies in the Group of Seven, including long-term laggards such as Japan and Italy. There were only limited signs of a rebalancing of the economy away from consumer demand and toward business investment and net trade that Carney pointed to as positive signs in an appearance before lawmakers on Wednesday.
Business investment was flat on the quarter and 2.1 percent higher on the year, both readings coming in weaker than expected in a Reuters poll of economists. Net trade dragged on growth in most quarters of 2017, though it was positive on the year.
The BoE said earlier this month that it expected the economy would grow by 1.8 percent this year, faster than its previous forecast of 1.6 percent, mostly because of the strength of the global economy.