The last major economic data release before the general election proved a disappointment for the government. The economy grew by 0.3% in the first three months of this year, half the pace of the previous quarter. Industrial production and construction slipped, while the services sector, which accounts for over 75% of the economy, grew more slowly than anticipated.
The GDP figure for January to March was the lowest quarterly figure since the end of 2012, when the economy shrank. The annual growth rate is now 2.4%. With the eurozone recovering, its quarterly growth figure could have outstripped the UK’s for the first time since 2011. Eurozone GDP data are released in mid-May.
What the commentators said
Take the figure with a pinch of salt, said Alistair Osborne in The Times. The first estimate of a quarter’s GDP is based on only 40% of the data that will be available in a year’s time, “even if that is ten times what politicians use for a killer stat”. The biggest culprit was a sharp slowdown in construction, and even the Office for National Statistics (ONS) “admits it always gets that wrong”.
Still, said Peter Spence in The Daily Telegraph, while people are pointing out that GDP is often revised up, it’s interesting to note that in the past five years the average change to the ONS’s quarterly GDP numbers has been 0.02%. And even if you take construction out of the equation, the figure was still only two-thirds of the previous quarter’s rate of expansion.
The strong pound may be hampering manufacturing, which has slowed over the past year. However, Stephen Ibbotson of the Institute of Chartered Accountants in England and Wales reckons that political uncertainty in the UK, along with the endless drama in the eurozone, has also tempered corporate spending. “Our research suggests that businesses have hit pause.”
We doubt that the recovery is on the cusp of a sustained slowdown, said Capital Economics. Both consumer and business confidence are high, and surveys of investment intentions “are holding up reasonably well despite the political uncertainty”.
Household real incomes are set for their strongest growth since 2001, which bodes well for consumption, worth around 60% of GDP. Throw in “a more upbeat picture” from the latest surveys, and we should still see “decent economic growth of 2.5%-3%” this year.