The slowdown in the UK economy for the first three months of 2016 period is in line with expert expectations, and means the year-on-year rate of progress remain at 2.1%.
According to Russ Mould, investment director at AJ Bell, a figure of 2.1% is “unlikely to stoke substantial inflation or prod the Bank of England towards a first increase in interest rates since 2007”.
Slack retail sales and nagging worries about the overall level of debt in the system all raise question marks about the foundations of the UK’s economic upturn, which has been tepid at best since 2009, noted Mould.
“All of this means Bank of England Governor Mark Carney is unlikely to be dashing to raise rates when the Monetary Policy Committee next meets on Thursday 12 May, especially after sterling’s latest bounce,” he said.
But looking ahead, favourable tailwinds should deliver a reasonable rate of growth, according to Rain Newton-Smith, CBI director of economics. “Crucially, consumer spending – which accounts for around two thirds of the economy – is expected to hold up as low oil prices and decent household income growth reinforce spending,” she said.
However, Newton-Smith pointed out that global growth could slow further, hitting already weak exports and offsetting the boost from the falling pound.
“There is also a risk that concerns about debt positions in China and emerging markets could flare up again, leading to a return of financial market volatility,” she added.
June’s EU referendum could have an impact on UK’s underwhelming growth pace. “Two weeks ago the Bank of England said that concerns about the EU referendum had begun to affect the real economy, and many commentators will view today’s GDP figures as evidence to support this hypothesis,” commented Ben Brettell, senior economist at Hargreaves Lansdown.
“Weaker construction and production output are the primary reasons for the slowdown, which could prompt concerns that the UK economy’s reliance on the services sector is increasing further. Production output declined 0.4% and construction was down by 0.9%, whereas the dominant services sector grew by 0.6%,” said Brettell.
