UK growth rate slows to 4-year low

Economy just 1.5% bigger in Q2 year on year, even as BOE prepares to raise interest rates

LONDON • Britain's economy grew at its slowest pace since 2013 in the 12 months after last year's Brexit vote, data showed yesterday, painting a subdued picture as the Bank of England prepares to raise interest rates for the first time in a decade.

The world's fifth-biggest economy was just 1.5 per cent bigger than a year earlier in the second quarter, the weakest year-on-year expansion in more than four years and down from a rate of 1.8 per cent in the first three months of the year.

Britain's Office for National Statistics had previously estimated second-quarter growth at 1.7 per cent.

Yesterday's data also showed a monthly fall in output for the services sector in July, boding poorly for third-quarter growth.

Sterling fell after the data and prompted some economists to reconsider their prediction of a rate hike at the end of the BOE's next meeting on Nov 2.

"I'm sticking to my call for a hike in November, but I'm much more nervous now than I was prior to this data release," Scotiabank's Alan Clarke wrote in a note to clients. However, the weak data might not stand in the way of the BoE raising interest rates from their record low 0.25 per cent.

  • 2.5% Growth in business investment in the second quarter, year on year.

  • 5.4% Households' savings ratio in the second quarter.

BOE governor Mark Carney said yesterday the economy was on track for a rate hike "in the relatively near term", two weeks after the BOE jolted markets by flagging a rate rise "in the coming months," despite weak growth this year.

The BOE has downgraded its estimate of how fast Britain's economy can grow without generating excess inflation because of the impact of Brexit, so yesterday's weaker growth picture is not necessarily fatal for the chances of a November rate rise.

A major annual set of revisions of Britain's official data showed stronger business investment, net exports and household savings, but also a larger current account deficit.

Britain sucked in £23.2 billion (S$42.4 billion) of foreign finance in the three months to June, and the first-quarter deficit was revised up to £22.3 billion from £16.9 billion. Business investment grew by an annual 2.5 per cent in the second quarter, compared with an earlier estimate that it had stagnated, and households' savings ratio was a relatively healthy 5.4 per cent.

Net exports contributed 0.4 percentage points to quarterly growth, and an inflationary squeeze on consumers may be easing, with real household disposable income up 1.6 per cent in the latest quarter, the most since 2015.

Nonetheless, the broader picture remains one of consumers under pressure from a steep rise in inflation caused by the fall in the pound since last year's Brexit vote.


A version of this article appeared in the print edition of The Straits Times on September 30, 2017, with the headline 'UK growth rate slows to 4-year low'. Print Edition | Subscribe