UK’s GDP in 1Q: second estimate shows slower growth, from 0.3% to 0.2% on the previous quarter

London, 2017-May-27 — /EPR Retail News/ — The second estimate of the UK’s GDP in quarter one has revealed that growth so far this year has been slower than the first thought, dropping from 0.3% to 0.2% on the previous quarter.

The data, released earlier today (May 25, 2017) by the Office for National Statistics, show that GDP grew 0.2% in Q1 on the previous quarter, one basis point lower than the first estimate of 0.3%. A closer look reveals that the main reason for this slowdown is a sharp drop in household expenditure growth, which decelerated to its slowest rate since the end of 2014. This is definitive evidence that the strong consumer spending of the second half of 2016 evaporated in early 2017.Household final consumption expenditure grew just 0.3% in Q1 on the previous quarter, over two times slower than the rate of growth in Q4 2016 and the slowest rate since Q4 2014. This picture from the ONS aligns with that we’ve received from the retail sales data so far this year – namely that consumer spending has dropped off significantly. So far this year food sales have outpaced non-food growth, which has been stagnant for a number of months.

While at first glance this may be encouraging to food retailers, when price increases are taken into account it is clear that UK consumers are shopping in fairly tricky conditions. The impact of sterling devaluation in June is now starting to filter through to prices, the Shop Price Index recorded rising food prices from February onwards, the first time there have been three-months of consecutive food price inflation since 2014. Shoppers are buying the same amounts of food and drink but are having to pay more for it, taking funds from the kitty they have to spend on discretionary items and ‘luxuries’. The average regular wage rate has grown slowly for a number of months, and in the three months to March actually dropped below the rate of inflation. With inflation likely to increase further in the coming months, the problem is unlikely to go away. Conditions for retailers are set to become more difficult.

Despite this weakness, the GDP release also showed an increase in investment in the first quarter of 2017. Gross Fixed Capital Formation, which measures the amount of investment in the economy, grew at 1.2%, its fastest rate since the second quarter of 2015. With the pound still weak, 11% lower than its value on June 23rd 2016, it remains an attractive proposition for companies and individuals abroad to invest in UK business and infrastructure. On top of this the manufacturing industry continues to report solid growth, and has likely used the favourable conditions to plough back some of its profits into investment. Conditions in the wider UK economy remain healthy enough, particularly for importers, who have all to gain from a weaker pound making their goods more competitive abroad.

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Source: BRC