UK fourth quarter GDP has been revised down from 0.5% to 0.4%, decreasing the chances of an imminent interest rate hike.
The downgrade, announced in the Office for National Statistic’s second cut of the data, pushes the UK back down to the bottom of the G7 growth table in 2017, behind Italy.
‘This is not an economy that needs cooling with higher rates,’ said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
He noted that growth had been downgraded in both first and second quarters, before being revised up in the third, suggesting the UK had 'gathered a little momentum in the second half’.
Delving more deeply into the numbers, Tombs says the 0.3% quarter-on-quarter rise in household real spending appears to have been funded by saving less and higher borrowing, with spending growth of 1.1% significantly higher than wages, up 0.5%.
The trade picture also painted a fairly gloomy picture, suggesting that UK businesses were still opting to take the earlier boost from sterling in the form if higher profitability rather than increasing volumes.
‘Net trade subtracted 0.5% from quarter of quarter GDP growth in Q4.
‘Total investment rose by 1.1%, but this was driven by a surge in government investment—which is erratic—and solid growth in investment in dwellings. Business investment was flat, tentatively suggesting that Brexit still is fostering caution in boardrooms.
‘All told, then, the latest GDP data suggest that the economy remains in a fragile state and does not need to be cooled with another rate rise as soon as May.’
Dennis de Jong, managing director at UFX.com, echoed the view that a May rate rise is now less likely.
‘Though Bank of England governor Mark Carney (pictured) has sounded quite bullish in his approach to raising interest rates this year, today’s latest reading shifts the landscape somewhat and proves that there are a number of hurdles to clear before he can pull the trigger,’ he said.
‘The news comes at a crucial time for prime minister Theresa May, who welcomes her top ministers to Chequers for Brexit talks today. With economies on the continent and the eurozone as a whole both performing well at the moment, it’s a tough day for Brexiteers to present their argument, as Britain risks being left behind.’