UK economic growth ‘weakest in Europe’ during first quarter of 2017, data suggests

The UK economy experienced the weakest rate of growth in the EU during the first quarter of this year, figures published by European statistics agency Eurostat have suggested.

UK Economy

Britain’s economy grew by just 0.2% in the three months to March – a significant fall from the rate of 0.7% recorded during the last quarter of 2016.

Experts believe that Brexit was partly to blame for the UK’s low economic growth rate, alongside rising prices due to lower sterling.

The data also revealed that growth for the EU as a whole totalled 0.6% in the first quarter of 2017. It found that the French economy grew by 0.4%, whilst German economic growth rose by 0.6%.

Economists expect Britain’s Gross Domestic Product (GDP) rate to rise slightly in the coming months.

The UK economy is set to grow by 1.6% by the end of 2017, as predicted by the Organisation for Economic Co-operation and Development (OECD). However, the OECD also expects UK economic growth to fall to 1% during 2018, as Brexit looms.

Business confidence has ‘fallen dramatically’ since General Election, IoD suggests

A snap poll carried out by the Institute of Directors (IoD) has found that, following the General Election and the subsequent Hung Parliament, business confidence in the UK economy has ‘fallen dramatically’.

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The poll of 700 IoD members revealed that businesses require ‘rapid agreement’ on transitional arrangements that arise from Brexit talks, alongside clarity as to whether EU nationals already residing in the UK will be permitted to remain in the country following Brexit.

Businesses also have ‘no desire’ for another election this year, the poll suggested.

The IoD has called for the government’s main priority to be striking a new trade deal with the EU.

It also warned that political uncertainty generated by the election could have ‘disastrous’ consequences for the UK economy.

Stephen Martin, Director General of the IoD, said: ‘The needs of business and the discussion of the economy were largely absent from the [General Election] campaign, but this crash in confidence shows how urgently that must change in the new government.’

UK manufacturers report ‘strong growth’ in domestic and export orders

A survey carried out by the Confederation of British Industry (CBI) has revealed that, in the three months to April, UK manufacturers’ domestic orders improved at the ‘fastest pace since July 2014’.

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Meanwhile, export orders recorded the strongest growth in six years, according to the CBI’s latest Industrial Trends Survey. This was conducted before the announcement of a General Election.

However, the CBI also revealed that the weak pound pushed up costs, with manufacturers reporting the strongest rise in unit costs in six years.

Rain Newton-Smith, Chief Economist at the CBI, commented: ‘UK manufacturers are enjoying strong growth in demand from customers in the UK and overseas, and continue to ramp up production.

‘Exports have surged and firms are at their most optimistic about selling overseas in over four decades. Even so, the combination of the weak pound and recovering commodity prices means that cost pressures continue to build, and manufacturers report no sign of them abating over the near-term.’

IMF upgrades UK growth forecast

The International Monetary Fund (IMF) has raised its UK growth forecast for 2017 for the second time in three months.

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Within its half-yearly World Economic Outlook, the IMF predicts that the UK economy will now grow by 2% this year, up from its previous forecast of 1.5%. This makes the UK economy the second fastest growing advanced economy, after the US economy.

The IMF stated that the forecast has been raised in response to the stronger than expected performance of the UK economy since the vote to leave the EU last year.

However, UK economic growth is expected to slow to 1.5% in 2018.

Commenting on the IMF’s decision to raise its growth forecast, Chancellor Philip Hammond said: ‘The fundamentals of our economy are strong and we continue to invest in the skills needed for a stronger and fairer Britain.’ Mr Hammond also stated that Britain will play ‘an active and engaged role in the global economy’.

Survey suggests UK economy is ‘losing momentum’ following strong growth

The UK economy has started to slow following ‘impressive growth’ at the end of 2016, according to the latest Markit/CIPS Purchasing Managers’ Index (PMI) for the UK’s services sector.

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The services PMI for February fell to 53.3 from a figure of 54.5 in January, representing a five-month low. Despite this, it remains above the threshold that separates growth from contraction: a PMI reading below 50 indicates contraction.

A ‘softer pace of business growth’ and weaker consumer spending have contributed to the slowdown.

Chris Williamson, Chief Business Economist at IHS Markit, commented: ‘A further slowdown in UK business activity growth in February adds to the evidence that the economy has lost momentum after the impressive expansion seen at the end of last year.

‘Inflationary pressures remained the highest for six years as firms struggled with rising costs associated with the weak pound, but optimism about the year ahead remained elevated by recent standards.’

Business groups publish Budget wish lists

Ahead of the 2017 Spring Budget on 8 March, business groups have set out their wishes and priorities for both business and the UK economy.

In a letter to Chancellor Philip Hammond, the Confederation of British Industry (CBI) called for the government to ‘back businesses’ growth ambitions’ to help build prosperity across the UK, and to work alongside firms to ‘prioritise stability’ during periods of economic uncertainty.

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The CBI has also urged the government to tackle the UK’s ‘outdated’ business rates regime and limit its ‘growing burden’ on businesses.

Echoing the call made by the CBI, the British Chambers of Commerce (BCC) also advised the government to take action on ‘delivering real reform’ to the business rates system.

The business group called for the government to abandon the ‘fiscal neutrality principle’ in business rates reform, labelling this as an ‘unacceptable barrier’ to the revision of the system.

The BCC also recommended that the government bring forward the switch from the Retail Price Index (RPI) to the Consumer Price Index (CPI) to April 2017, instead of during 2020, as is currently planned.

Meanwhile, the Federation of Small Businesses (FSB) has advocated for a ‘pro-business Budget’ that supports self-employed individuals, urging the government to help more people start up in business. Commenting on the issue, Mike Cherry, National Chairman of the FSB, asserted that the FSB is seeking ‘changes to the social security system so that it better reflects today’s economy’, alongside ‘incentives to help the self-employed pay for their retirement’.

Reflecting on the government’s response to its Making Tax Digital (MTD) consultation feedback, the FSB also proposed that HMRC alters its tax digitisation timetable, and implements the MTD initiative in 2020, rather than in 2018 as is currently planned.

The Chancellor will present the 2017 Spring Budget on Wednesday 8 March. Coverage of the key announcements will be available on our website, so please visit regularly.

Bank of England raises UK growth forecast

The Bank of England has once again significantly increased its growth forecast for the year. It now expects the UK economy to grow by 2% in 2017 – a major rise from its November forecast of 1.4%.

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That forecast was itself an upgrade from the 0.8% forecast made in August.

The Bank was criticised last year for its overly pessimistic predictions following the June Brexit vote. Announcing the latest forecast, Governor Mark Carney admitted that the Bank had misjudged the strength of consumer confidence following the referendum.

He commented: ‘The thing that we missed is the strength of consumer spending and consumer confidence associated with that.

‘After an initial wobble in terms of consumer surveys… it bounced back pretty quickly.’

However, he warned that the implementation of Brexit could still cause difficulties, saying: ‘The Brexit journey is really just beginning. While the direction of travel is clear, there will be twists and turns along the way. Consumers have not been affected by the uncertainty around Brexit.

‘Uncertainty over future arrangements is weighing on business investment, which has been flat since the end of 2015.’

In the longer term, the Bank still expects the economy to slow down, with growth in 2018 predicted to fall to 1.6% in 2018.

As expected the Bank’s Monetary Policy Committee (MPC) kept interest rates on hold at 0.25%.