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UK First-Quarter Growth Unrevised

UK First-Quarter Growth Unrevised

05/28/2015

By Jon Sindreu and Jason Douglas

 

LONDON--A fresh batch of official data for the U.K. confirmed the economy slowed in the first quarter of the year, scotching hopes growth would be revised up.

U.K. gross domestic product rose 0.3% during the first quarter of 2015, the Office for National Statistics said, an annualized rate of 1.2%. Figures were unrevised from preliminary data released last month.

The unchanged rate of growth is below expectations by most economists, who were forecasting the ONS would cast a more positive light on a disappointing start to the year. The Bank of England expects final revisions to show the economy expanded 0.5% during the first quarter and believes growth will accelerate during the second.

Economic growth stalled due to the service sector having a worse performance than previously thought, as well as a widening trade deficit, official figures showed. Manufacturing and construction, which were slightly revised upward, failed to offset a gloomier picture for services--the main driver of growth in Britain, which makes up almost 80% of the economy--mainly due to a slowdown in sectors such as computer programming and consultancy. Trade was also a strong drag on growth, due to in imports--chiefly oil and machinery--increasing at a faster rate than in exports.

The U.K. economy had a bumper 2014 and grew faster than any other in the Group of Seven club of advanced nations. However, a slowdown in activity in recent months led analysts to worry about the powerful headwinds faced by Britain--such as disappointing productivity growth, weak exports and an overreliance on the services sector.

By contrast, official statistics showed positive signs that companies are trusting the economy again. Business investment rose 1.7% in the three months to March, the ONS said, a 3.7% annual rise.

According to economists, weak business investment is one of the factors dragging down productivity, which is a key gauge of a country's long-term prosperity. Investment by British companies had shrunk 1.4% in the final quarter of 2014 due to the oil and gas industry in the North Sea cutting down spending on infrastructure. While the ultra-low price of oil in the international markets is a windfall for the purchasing power of households--allowing consumers to ramp up spending--it has hampered production in the U.K. extraction industry.

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