Growth in the first quarter of 2018 was anaemic—but the real worry lies in the economic trendsby George Magnus / May 1, 2018 / Leave a comment
The announcement last week that UK GDP rose by a mere 0.1 per cent in the first quarter of 2018 alarmed many an economic commentator, and pushed Sterling against the ropes. No one should take preliminary GDP data for a single quarter that seriously, and there are extenuating circumstances, but the data come as a warning that the UK may be starting to flirt with the next economic downturn. It may unfold this year or wait in the wings until 2019. Yet the government and Brexiteers are surely whistling Dixie when they say the economy is basically in good shape. For now, at least, mortgage-holders can breathe a sigh of relief. There will be no further rise in interest rates in the near future.
The details, for what they are worth, included a 3.3 percent drop in construction activity, which was partly related to the brutal weather in February, but construction also dropped in January. Production rose 0.7 per cent as the energy sector compensated for weak manufacturing output, which rose by just 0.2 per cent. And service producing industries, which comprise about four-fifths of what the UK does, rose 0.3 per cent. Tellingly, the consumer-facing side of the services sector has been doing especially poorly for several quarters, relative to business services. The ONS said that overall, the weather was only a peripheral factor.
This then begs two questions. What does the underlying trend in the broad economy look like? And what is going on in the consumer sector, especially?
After the European Union referendum in June 2016, the economy enjoyed a bit of a purple patch. It wasn’t a uniquely UK phenomenon, but clearly there was no referendum hangover. The economy grew by an annualised 2 per cent in the summer and 2.8 per cent in the final quarter. Since then, though, it’s been all downhill. The average quarterly growth rate, annualised, until early this year was 1.2 per cent, compared with almost 2 per cent in the same number of quarters before the referendum. There’s no question then that the economy’s trend has been on the slide.
It is true that the UK wasn’t the only country to have slowed in early 2018. The United States growth rate dropped to 2.3 per cent annualised (from 2.9 per cent), but if you allow for the…