'Beast from the East' not cause of collapse in UK GDP growth, insists ONS

The Office for National Statistics is sticking to its view that the “Beast from the East” was not primarily responsible for the collapse in GDP growth in the first quarter of this year.

Bank of England officials earlier this week said they did not share the view of the ONS that the fall in GDP growth to just 0.1 per cent in the three months to March – the worst reading in more than five years – was not primarily due to the snow storms.

The Bank’s governor, Mark Carney, told the Treasury Committee that they though the ONS’s survey method for gathering information from firms on the level of snow disruption was flawed and said that growth would ultimately likely be revised up to 0.3 per cent.

But unveiling its second estimate of GDP growth in the quarter on Friday the ONS did not revise its view that there was evidence of an underlying UK growth slowdown too.

“Overall, the economy performed poorly in the first quarter...While there was some evidence of the poor weather hitting construction and high street shopping, this was offset to an extent by increased energy supply and online sales,” said Rob Kent-Smith, the ONS’s head of GDP.

The headline estimate of growth was unchanged at 0.1 per cent.

The ONS added that it now estimates business investment fell by 0.2 per cent in the quarter, the weakest performance since Q3 2015, while household spending growth slowed to 0.2 per cent, the worst since 2014.

After accounting for population growth, the ONS thinks that GDP per capita fell by 0.1 per cent in the quarter.

The question of whether the slump in growth in Q1 is a temporary blip due to bad weather or is evidence of an underlying slowdown is crucial to the path of interest rates.

Bank policymakers believe it is likely to be the former, indicating earlier this month that they are likely to raise interest rates again later this year. However, they held off from rate hike to 0.5 per cent in May on the basis of the surprise GDP figures and want to see more data confirming their view that the slump is temporary.

Mr Carney, conceded on Thursday that there might be deeper problems in the economy. “The weakness in demand at the start of the year could reflect a worsening of the underlying economic climate, not the temporary effects of adverse weather as the Committee currently assesses ... there is a risk that households could opt to save rather than spend as their real incomes recover,” he said.