Revised GDP data paints weaker picture for UK economy
UK economic growth was confirmed at 0.4% for the second quarter but first-quarter growth was revised down by the Office for National Statistics on Friday.
Releasing a second estimate for GDP that was unchanged from the first, the Office for National Statistics also provided more details on the composition of growth, which showed that business investment was revised down sharply.
Business investment fell by 0.7% in the second quarter and has now fallen in each quarter of the year so far and net trade exerted a large drag of 0.6 percentage points on overall GDP growth. On the upside, growth in household spending was revised up to 0.4% from 0.3%.
Growth was driven by the services sector, which increased by 0.6%, following relatively subdued growth of 0.3% in the first quarter.
Year-on-year growth improved to 1.2% in the second quarter from 1.1% in the first quarter, which had been the weakest annual growth performance since the second quarter of 2012. Economists had expected 1.3% year-on-year growth.
First-quarter growth was revised to 0.1% from 0.2% after more comprehensive VAT turnover data was incorporated into the calculations, painting a weaker picture for construction output.
"Today’s GDP figures left the economy looking a little weaker than before," said economist Ruth Gregory at Capital Economics, with the composition of growth revealing "a rather less healthy picture".
On the upside, second quarter growth in household spending was revised up and households did not have to save less to fund the 0.4% rise in real spending in Q2 as the saving ratio picked up from 3.6% in Q1 to 3.9% – but it still remains far below its long-run average of a little over 8%.
Looking ahead, she said there have been encouraging signs with July's three-month GDP growth rising to 0.6% from 0.4% – a little above the Bank of England’s 0.5% growth projection for the third quarter as a whole.
With the possibility of a “no deal” Brexit still hanging over the economy, Gregory doubted that the Monetary Policy Committee will be in any hurry to hike interest rates again soon and does not expect the MPC to move again until May 2019.
Economic think-tank the EY Item Club forecast GDP growth of 1.3% for the whole of 2018, down from 1.7% in 2017 and the weakest expansion since 2009.
"We expect growth to have picked up further to 0.5% quarter-on-quarter in the third quarter. However, we expect growth to fall back to 0.3% quarter-on-quarter in the fourth quarter as heightened uncertainties over Brexit lead to business caution, especially over investment," said economic adviser Howard Archer.
"Consumers may also be more cautious over spending after splashing out over the third quarter as sticky inflation limits purchasing power."
If the UK and the EU find a Brexit transition deal before the end of next March, the Item Club sees GDP growth creeping up to 1.4% in 2019.
"Forecast growth in 2019 assumes that growth is limited to 0.3% quarter-on-quarter in both the first and second quarters as a consequence of heightened uncertainty in the run-up to the UK leaving the EU in late March and in the immediate aftermath of the UK’s departure. Thereafter growth is seen picking up to a 0.4% quarter-on-quarter rate in the third and fourth quarters," Archer said.