GDP growth in UK is revised down to five-year low

The UK economy grew at a slower pace than previously thought at the end of 2017, as production industries dragged growth back. According to the Office for National Statistics, GDP rose by only 0.4 per cent in the fourth quarter of 2017, which was 0.1 percentage points down from its first estimate.
The growth downgrade means that the UK economy grew by only 1.7 per cent in 2017, lower than thought at first with a slower first quarter than earlier estimates.
That meant a bigger slowdown from the 1.9 per cent expansion seen in 2016, and the slowest since 2012.
Business investment growth was flat in the fourth quarter, although it rose by 2.1 per cent over the year.
The figures give further evidence of the overwhelming dependence of the UK economy on the services sector, which accounted for 1.3 percentage points of 2017 growth — although that represented a steep fall from the two per- centage point contribution to growth in 2016.
Financial and business services provided a rare bright spot, with growth in the sector, which covers much of the City (financial district), revised upwards from 0.8 per cent to 0.9 per cent.
The figures show the importance of preserving the City’s trade access to the European Union after UK leaves, according to Stephen Jones, chief executive of the UK Finance lobby group.
He said: “This is a timely reminder of the importance of financial services in talks over a future EU-UK agreement.” He added: “An ambitious free-trade deal, underpinned by the mutual recognition of closely aligned standards, will help drive jobs and growth both in Britain and across the continent.”
GDP per head, which strips out the effects of a rising population, grew by 0.2 per cent in the fourth quarter, meaning it is only three per cent above the pre-financial crisis peak.
Pablo Shah, an economist at the Centre for Economics and Business Research, said: “The squeeze on household incomes that persisted over much of 2017 appears to have taken its toll on consumer spending in the final quarter of the year.”
However, UK economist at Capital Economics, Andrew Wishart, said that “with inflation starting to ease off and global economic growth robust, we suspect both household spending and net trade will provide greater support ahead.” Economists on average expect GDP growth to slow further 1.5 per cent in 2018, according to average predictions form forecasters in the financial district of London.
Since the recession following the financial crisis, Britain has seen the strongest productivity growth but the question is can it maintain it? According to senior market analyst at ETX Capital, Neil Wilson, productivity was artificially high pre-crisis because of the credit and housing bubbles.
It took a long time to recover but the longer-term trend should reassert itself even as highly productive sectors like oil extraction decline.
Productivity hinges on investment.
Business investment has stalled a little lately but should pick up once Brexit’s uncertainty has lifted, according to the governor of Bank of England, Mark Carney.
UK public investment in infrastructure has lagged behind OECD peers for 30 years but there is a strong pipeline of projects, and the government has said to significantly increase investment over the next decade.
Wilson says there is a strong case for higher interest rates to help.
Normalisation of interest rates will force out zombie companies that have battled on and been unproductive, lowering the average rate of productivity growth, since the crisis. This should free up economic resources for more productive uses, which ought to support productivity growth.
On the contrary, the chief economist at Ernst Young, Mark Gregory, interestingly argues while the latest UK productivity numbers suggest some positive upturn, it is far too early to get excited.
The recent improvement reflects a slower rate of hiring, rather than a surge in productive output, as UK growth is lagging that of its peers.
The latest 2017 GDP figures show business investment was flat, despite faster global growth.
It’s concerning that there is little sign of the UK positioning itself to take advantage of technological change.
Robots can do many things but they can’t buy themselves, Gregory points out. He says until there is a sustained increase in investment, there is little prospect of the UK making real progress on productivity. (The author is our foreign correspondent based in the UK. He can be reached at