Business

UK economy exceeds fourth-quarter forecasts as economists warn of slowdown

The UK's economy has held up in the fourth quarter, despite some experts predicting the unexpected shutdown of a major North Sea pipeline would drag on growth

THE UK's economy performed better than expected in the fourth quarter thanks to the country's powerhouse services sector, though there are warning signs of "slower and uneven" growth.

The Office for National Statistics (ONS) said gross domestic product (GDP) grew by 0.5 per cent in its initial estimate for October to December last year, following growth of 0.4 per cent in the third quarter.

Economists had been expecting growth of 0.4 per cent, according to consensus figures, though a minority had forecast a slowdown to 0.3 per cent on the back of a temporary shutdown of a major North Sea oil pipeline last month.

The biggest impact came from the UK's services sector - which accounts for around 79 per cent of the economy.

Services grew 0.6 per cent quarter on quarter, with business and financial services making the biggest contribution, accounting for work from the likes of lawyers, architects and business administrators.

However, the ONS said longer-term trends were pointing to a broader slowdown.

Sterling rose against the dollar following the news and was up nearly 1 per cent on the day at 1.42 US dollars. And against the euro, the pound was up 0.4 per cent to 1.14 euros.

ONS head of GDP Darren Morgan said: "Despite a slight uptick in the latest quarter, the underlying picture is of slower and uneven growth across the economy.

"The boost to the economy at the end of the year came from a range of services including recruitment agencies, letting agents and office management.

"Other services - notably consumer facing sectors - showed much slower growth," he said, referring to industries such as distribution, hotels, catering, transport and communications.

"Manufacturing also grew strongly but construction again fell."

The UK economy is still struggling to bounce back to levels seen in the final quarter of 2016 when GDP rose by 0.6 per cent.

Sterling rose sharply against the dollar following the news, flirting with 1.43, up 1 per cent on the day. Against the euro, the pound was up 0.4 per cent to 1.14 euros.

Manufacturing growth contributed to a 0.6 per cent rise for production industries over the quarter, but that was partly offset by a "significant" fall in oil and gas extraction following the temporary shuttering of the North Sea Forties pipeline over the bulk of December.

It came after a routine inspection found a hairline crack in the pipe just south of Aberdeen, prompting emergency repairs that stopped the flow of of oil and gas from platforms feeding into the system.

Construction, meanwhile, contracted for the third straight quarter - this time by 1 per cent, while agriculture contracted 0.4 per cent.

The ONS said the UK is likely to have seen economic growth of around 1.8 per cent for the whole of 2017 a slightly slower rate than 2016 when it grew 1.9 per cent and marking the weakest rate since 2012 when the economy expanded 1.5 per cent.

The International Monetary Fund (IMF) earlier this month slashed the UK's growth outlook from 1.6 per cent to 1.5 per cent for 2019, the year it quits the European Union.

For 2018, the IMF is forecasting UK growth at 1.5 per cent, with the organisation previously saying that Brexit uncertainty and the inflation squeeze on household spending power would put the brakes on the UK economy.

The Washington DC-based group said firms are likely to continue deferring investment decisions until there is greater clarity on the UK's future trading relationship with the European Union.

Howard Archer, chief economic adviser to the EY ITEM Club, said: "Fourth-quarter UK GDP surprised on the upside coming in at 0.5 per cent quarter-on-quarter.

"This was the best performance since the fourth quarter of 2016. The economy gradually picked up through the second half of 2017 after a muted first half performance.

"GDP growth was 1.8 per cent in 2017. This was a significantly better performance than had been widely expected at the start of the year, given the major Brexit uncertainties that were expected to - and duly did - persist through the year. Additionally, there was a major squeeze on consumer purchasing power.

"Nevertheless, GDP growth of 1.8 per cent in 2017 was the slowest UK expansion since 2012 and it looks somewhat uninspired compared with markedly improved global growth."

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