Economy: Are the latest growth figures a blip?
New figures from the Office for National Statistics (ONS) show that the UK economy grew by only 0.3% in the first quarter of 2017, compared with 0.7% growth in gross domestic product (GDP) in the final three months of 2016.
Rob Johnston, Chief Executive of Cumbria Chamber of Commerce, said: “The estimate of UK GDP growth indicates that the UK economy suffered a slight loss of momentum in the first quarter, following a strong end to 2016.
“That said, quarterly growth of 0.3% is still in line with the average over the past decade.
“The main reason for the slowdown were declines in output from consumer-focused industries such as retail and hotels, further evidence that higher inflation is dampening consumer activity.”
Economists had been forecasting that GDP growth would slow to 0.4% in the first quarter as consumers cut spending in the face of rising inflation, which hit 2.3 per cent in February and remained there in March.
The actual figure of 0.3% was, therefore, lower than expected.
The squeeze on household spending has led to weaker retail sales, which recorded their biggest fall for seven years in the three months to March.
The squeeze on household spending has led to weaker retail sales, which recorded their biggest fall for seven years in the three months to March.
Rob said: “It is increasingly likely that the slowdown in the first quarter is the start of a sustained period of more sluggish growth.
“Inflation is expected to continue to rise, increasing the squeeze on consumer spending power and firms’ profit margins, pushing growth lower.
“We are worried about the very high levels of debt in the economy. If consumer spending has been driven by borrowing, that isn’t sustainable. Interestingly, in what you might call the ‘real world’ of manufacturing, demand has held up better.”
The Purchasing Managers’ Index for manufacturing, rose to a balance of 57.3 in April, the highest since April 2014. Balances above 50 signal growth, while those below 50 reflect contraction.
Rob added: “The British Chambers of Commerce’s own Quarterly Economic Survey confirms that inflation is a key risk to the UK’s growth prospects, with businesses under increasing pressure to raise prices.
“Uncertainty over the impact of Brexit and the distraction of a General Election are also likely to weigh on economic activity over the near term.
“With the UK economy set to enter a more challenging period, it is vital that more is done to address the longstanding domestic issues, including the chronic skills shortages and the escalating burden of upfront business costs, that continue to undermine the UK’s long-term growth prospects.”
© Cumbria Chamber of Commerce