Wednesday, September 27News That Matters

UK growth rate downgrade blamed on 'Beast'

The annual rate of growth in the UK economy has been downgraded because of a bigger-than-expected hit from last winter’s snow.

The Office for National Statistics (ONS) said that while gross domestic product (GDP) growth for the second quarter had been left unchanged at 0.4% following its latest revision, it had cut its estimate for output during the previous three months.

It now calculated that disruption, particularly to the construction sector, from the so-called ‘Beast from the East’ was worse than originally anticipated.

Houses under construction on a new housing development near Kempston in Bedfordshire.
Image: Housebuilding suffered during the cold wintry weather of February and March

It revised growth between January to March to a figure of just 0.1% from 0.2%.

It meant, the ONS said, that the annual rate of growth had therefore fallen to 1.2% from 1.3% with UK growth over the first six months of the year coming in at its weakest level since 2011.

Economists had been expecting no change.

The ONS added that while there had been no change to its output figure for the second quarter of the year, a 0.7% fall in business investment had been noted in the run-up to the UK’s departure from the EU.

Sterling – boosted in recent days by more positive language on the prospect of a Brexit deal – fell to an 11-day low of just above $ 1.30 as the information was digested.

Separate figures from the ONS showed the country’s balance of payments shortfall – the difference between money flowing in and out of the country – had got bigger and stood at £20.3bn between April and June.

Ruth Gregory, senior UK economist at Capital Economics, suggested the GDP downgrade would have a limited impact.

She wrote: “There have been encouraging signs that activity has strengthened at the start of Q3 (third quarter), with three-month GDP growth rising from 0.4% in Q2 to 0.6% in July – a little above the Bank of England’s 0.5% growth projection for Q3 as a whole.

“So despite today’s figures, we remain cautiously upbeat about the economy’s near-term prospects.

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“But with the possibility of a “no deal” Brexit still hanging over the economy, we doubt that the Monetary Policy Committee will be in any hurry to hike interest rates again soon.

“We don’t expect the Committee to move again until May 2019.”

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