Yahoo Finance Forties pipeline dents GDP growth but promises rebound in 2018
Britain’s economy did not grow quite as fast as first thought in the final quarter of 2017, with the Forties pipeline closure dragging down oil and gas production.
GDP rose by 0.4pc in the last three months of the year, the Office for National Statistics said, not the 0.5pc initially estimated.
Consumer spending slowed down as inflation hit shoppers, and construction output fell 0.7pc, which was better than a previous estimate of a 1pc decline.
As a result, the economy grew by 1.7pc in 2017 as a whole, which makes it the slowest expansion since 2012.
The figures show the economy expanding more rapidly later in the year - with growth of 0.2pc in the first quarter, 0.3pc in the second, 0.5pc in the third and 0.4pc in the fourth - and economists hope this momentum can continue to grow.
“To put the number in context 0.4pc quarter on quarter, or 1.6pc annualised, is in line with the economy's potential growth rate - we are at motorway speed,” said Alan Clarke at Scotiabank.
“That is a relief given that the consumer was in the eye of the storm during the fourth quarter; when inflation was at its peak and wages barely any higher. In other words, real income growth was at its worst, yet the UK still managed to post a trend-like growth rate. Imagine what growth could be like later this year when inflation is lower and wage inflation is higher.”
He added that oil and gas output should jump too into the new year as the Forties pipeline reopens.
However, hopes that the economy is rebalancing away from consumption and towards investment and exports have so far been frustrated.
Even at its slower growth rate of 1.8pc - the slowest in five years - household consumption outstripped the 1.7pc expansion in the economy as a whole.
In the final quarter, the net trade deficit expanded to £12.2bn, up from £9.7bn in the third quarter, in part because fuel exports fell and imports increased amid higher oil prices. As a result imports rose 1.5pc and exports fell 0.2pc in the quarter.
Business investment was flat on the quarter in a disappointing performance - compared with the same period of 2016 investment was up 2.1pc.
Business services and finance accelerated, growing by 0.9pc in the quarter - the fastest pace since 2014 - with transport, storage and communications services also picking up pace to expand by 1.1pc.
Andrew Wishart at Capital Economics believes several of these negative factors should fade, boosting growth into 2018.
“With inflation set to drop back – easing the squeeze on households’ real incomes – investment intentions remaining strong, and exporters still benefitting from a weaker pound, we expect annual GDP growth to strengthen to 2pc,” he said.
This has not kicked in just yet. Retail sales growth slowed in February, according to the CBI’s distributive trades survey.
The business group found sales were up on the year for 32pc of retailers but down for 24pc, giving a net balance of 8pc, which was down from 12pc in January, 20pc in December and 26pc in November.
Shops do anticipate something of a rebound next month, however. A net balance of 21pc expect sales growth in March, indicating retailers expect the slow patch to end soon.
Anna Leach, the CBI’s head of economic intelligence, said: “While trading conditions remain tough, it’s encouraging to see retailers’ investment intentions improving to their highest since August 2015, in addition to signs of renewed business optimism for the first time in more than a year.”
She added that “with labour-intensive businesses such as retailers finding it increasingly difficult to find workers, agreeing a jobs-first transition between the EU and the UK, in writing, by the end of March would provide some much-needed certainty.”
