UK economic growth revised down on inflation

By BLOOMBERG

LONDON • The UK economy expanded less than previously estimated in the fourth quarter (4Q) as consumers and businesses absorbed faster price increases.

Gross domestic product rose 0.4%, compared to an initial estimate of 0.5%, the Office for National Statistics (ONS) said yesterday. Offsetting that, the three months to September was revised up to 0.5%. In 2017, growth was 1.7%, the slowest since 2012.

Part of the economy’s weakness reflects the fallout from the pound’s drop since the vote to leave the European Union (EU) in 2016. Household- spending growth slowed in the 4Q, leaving its full-year increase at 1.8%, the weakest in five years.

But there’s also been an upside from the currency move, with a boost to exports. Trade contributed 0.4 percentage point to growth in 2017, the first time it’s added to the expansion over a full year since 2011.

The merits of depreciation were on debate on Wednesday as Bank of England (BoE) governor Mark Carney and fellow policymakers took questions at a Parliament committee. Most agreed that devaluations just make people “poorer”, a view reflected in consumer behaviour and retail sales over the past year.

“Services continued to drive growth at the end of 2017, but with a number of consumer-facing industries slowing, as price rises led to household budgets being squeezed,” said Darren Morgan, head of gross domestic product (GDP) at the ONS.

Brexit continues to dominate the outlook for the economy, creating uncertainty for companies and consumers that’s holding back demand.

Divisions within government aren’t helping the situation, and Prime Minister Theresa May gathered with her most senior Cabinet ministers yesterday in a bid to end the rift over the EU exit process.

Weak Growth
Services — the biggest part of the UK economy — grew 0.6% in the 4Q, though downward revisions to components including distribution, hotels and restaurants contributed to the revision in headline GDP. The 1.6% fullyear growth was the slowest since 2011.

The estimate for industrial production in the 4Q was also revised lower. Even with the economy on a weaker growth path, inflation has taken over as the BoE’s primary concern. It’s currently running at 3%, a full percentage point above the central bank’s target, prompting an interest-rate increase in November.

Officials said that more tightening will be needed to keep prices in check, though Carney refused to be drawn on the exact timing of the next hike on Wednesday. Market pricing suggests it could happen as soon as May.

Net Migration Falls
Meanwhile, net migration to the UK has fallen by 92,000 since the June 2016 Brexit referendum as EU nationals arrive in fewer numbers.

Total arrivals outnumbered departures by 244,000 in the 12 months through September, down from 273,000 a year earlier and a peak 336,000 in the 12 months before the vote to quit the EU, the ONS said yesterday.

EU citizens accounted for all of the change, with net migration from the bloc falling to 90,000, the lowest figure since 2012. EU immigration fell to 220,000 and emigration jumped to 130,000, the highest since 2008. This was partially offset by an increase in net migration from countries outside the EU.

The decline will be welcomed by Brexit supporters pressing for a hard line on immigration and brings May closer to her target of cutting annual net migration to the “tens of thousands”.

But sectors such as hospitality, agriculture and the National Health Service rely heavily on EU labour and are struggling to find the workers they need.

“Brexit could well be a factor in people’s decision to move to or from the UK, but people’s decision to migrate is complicated and can be influenced by lots of different reasons,” said Nicola White, head of international migration statistics at the ONS.

Reports suggest EU citizens have been deterred by the Brexit vote, a less favourable exchange rate and improved job opportunities in their home countries. The euro-region economy outpaced the UK last year and is set to do so again in 2018.

The number of EU citizens coming to the UK for work-related reasons has fallen over the last year, in particular those looking for work, the ONS said.