UK economic growth confirmed at 0.1% in first quarter

UK gross domestic product increased by only 0.1% in the first quarter of 2018, the Office for National Statistics confirmed on Friday, unrevised from its preliminary estimate.

In its second estimate of GDP, the ONS confirmed that construction output declined sharply the quarter, while growth in services and manufacturing also slowed. Growth in household consumption remained subdued, business investment fell but wages grew strongly reflecting record-high employment levels.

Household spending grew by just 0.2%, which was the weakest since the end of 2014, while business investment decreased by 0.2% quarter-on-quarter and net trade provided just 0.1% to support growth.

“Overall, the economy performed poorly in the first quarter with manufacturing growth slowing and weak consumer-facing services," said Rob Kent-Smith, head of GDP at ONS. "Oil and gas bounced back strongly, however, following the shutdown of the Forties pipeline at the end of last year.

“While there was some evidence of the poor weather hitting construction and high street shopping, this was offset to an extent by increased energy supply and online sales."

Any hopes that quarterly growth of 0.1% might be quickly revised up have been disappointed, said economist Ruth Gregory at Capital Economics.

"At least there was some better news in the expenditure breakdown," she said, as it showed GDP growth would have been much stronger had it not been for a big negative contribution from inventories. "Excluding this volatile component, GDP would have risen by 0.3%."

She said the fact that household spending picked up was something of a relief after the 0.4% fall in retail sales seen in the quarter as non-retail spending "must have risen strongly" and since a large part of the weakness probably reflects the severe weather around the start of March, "it should prove transitory".

"We still think that the figures are under-estimating the true strength of the economy and will be revised up in time. Note that the MPC thinks that quarterly GDP growth was more like 0.3%. Meanwhile, we doubt that it will take too much to convince those MPC members – who are waiting for confirmation that the slow patch will prove transitory – to switch from the no-change to the rate-hike camp."

Sam Tombs at Pantheon Macroeconomics said the torrid start to the year was agreed as being largely due to bad weather, with the output breakdown data showing that activity was depressed in the weather-sensitive construction, distribution and consumer services sectors.

He said household spending has scope to rebound in the second quarter as pay jumped 1.6%, which was the biggest rise since summer 2016 versus a 0.7% increase in nominal spending. "As a result, the saving rate likely rose to its highest level since Q3 2016, leaving households’ financial position looking less precarious than before."