Sunday 22 April 2018

UK economy slows in first quarter as manufacturing and construction slump

Lenders financing London property are seeking higher interest rates as the market there slows
Lenders financing London property are seeking higher interest rates as the market there slows

The UK economy slowed in the first quarter of this year following a slump in the manufacturing and construction industries.

The Office for National Statistics (ONS) said gross domestic product (GDP) grew by 0.4% in the first three months of 2016, down from 0.6% in the fourth quarter of last year.

The downward impact on growth was driven in part by a poor performance from the manufacturing industry, which fell by 0.4% in the first three months of the year compared with a 0.1% rise in the quarter before. Overall production was down 0.4% between January and March.

The construction industry also dropped back in the first quarter, falling 0.9% compared with an increase of 0.3% in the fourth quarter.

But Britain's dominant services sector, which accounts for more than 78% of the UK economy, made strong ground, lifting 0.6% in the first quarter.

It came as the index for services showed that output increased by 0.1% between January and February this year, the same level of growth as between December and January after the ONS revised down its figure by 0.1 percentage points.

ONS chief economist Joe Grice said its initial estimate for first quarter GDP showed the UK economy had slowed down.

He added: "Today's figures suggest growth has slowed as compared with the pace up to to the middle of last year.

"Services continue to underpin the economy but other sectors have shown falling output this quarter."

Mounting gloom over the global economy, Britain's forthcoming referendum on Europe and market volatility have dealt a blow to business confidence in recent months.

It has left the Bank of England in no hurry to raise interest rates from 0.5%, where they have remained since March 2009.

Bank governor Mark Carney warned last week that uncertainty around the EU referendum was beginning to hamper UK economic growth.

He told the House of Lords Economic Affairs Committee that the risk posed by the EU referendum had "the potential to reinforce existing vulnerabilities in relation to financial stability", which include the UK's high current account deficit, the property market and market liquidity.

He said: "Some elements of these risks may be beginning to manifest."

Mr Carney also reaffirmed concerns raised by the Bank's Monetary Policy Committee earlier this month, stating that there was "some softening in growth during the first half of 2016" due to uncertainty surrounding Britain's vote on the EU.

It came after the International Monetary Fund (IMF) downgraded its forecast for the UK economy over fears of disruption if Britain leaves the EU on June 23.

The IMF scaled back its projection for UK economic growth for 2016 by 0.3 percentage points to 1.9% - marginally below the 2% forecast of the Government's Office for Budget Responsibility - but held its forecast for 2017 at 2.2%.

A series of industry surveys covering the manufacturing, construction and services sectors had already pointed to a slowdown in GDP in the first quarter of this year.

Press Association

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