Growth rate figure expected to dip

Sunday 26 April 2015

Growth figures published this week look set to show that the UK's economic expansion slowed down at the start of this year.

Economists expect gross domestic product (GDP) to have increased by 0.5% in the first quarter, down from 0.6% in the last three months of 2014. Some are pencilling in an even lower number of 0.4%.

Figures will be released by the Office for National Statistics (ONS) on Tuesday, just nine days before the General Election.

Revised data last month showed that the economy expanded by 2.8% in 2014, its strongest pace since 2006. It confirmed the UK as the fastest growing of the G7 major advanced economies last year.

But since then official monthly figures have shown a dismal start to 2015 for much of the economy.

Industrial production had a flat first couple of months while construction contracted in both January and February, according to the ONS.

The services sector, representing more than three quarters of output, also shrank in January while exports tumbled to a four-and-a-half year low in February as the trade deficit widened. Last week, figures showed a surprise decline in retail sales in March.

However, minutes from the latest meeting of the Bank of England's rate-setting Monetary Policy Committee (MPC) noted that some of the data was "volatile and susceptible to revision".

They pointed to more upbeat readings from unofficial surveys. These have pointed to growth ticking up to 0.7% for the first quarter.

Weak growth may cement expectations that interest rates will not be hiked until next year for fear of hampering the recovery.

However there are expectations that even if the economy is seen to have slowed down in the first quarter, expansion will pick up thanks to consumer demand being buoyed by the plunge in inflation - which has been running at zero for the last two months.

Scotiabank's Alan Clarke said he was pessimistic on growth, expecting it to decelerate to 0.4% for the first quarter, adding that he "wouldn't rule out an even lower number". But he said the second quarter should be much stronger.

Vicky Redwood of Capital Economics said: "The first estimate of GDP seems likely to show that the recovery slowed in Q1 and may therefore put the coalition parties on the back foot just nine days before the General Election.

"Nonetheless, we doubt that the recovery is on the cusp of a slowdown. Households' incomes are on track for their strongest growth since 2006 this year.

"Meanwhile, borrowing costs are falling and monetary stimulus appears to have revived the eurozone economy."

Howard Archer of IHS Global Insight said he expected a slowdown to 0.5%, saying it would be "very unwelcome" for coalition parties "hoping that many undecided voters will ultimately decide to vote for them due to their management of the economy".

"However, we believe growth prospects are still decent for the UK economy as long as there is not prolonged political uncertainty following the General Election.

"The fundamentals look particularly promising for consumer spending.

"Extended low oil prices and generally limited input prices should boost companies' margins and be supportive to business investment along with a generally healthy economic environment and improved profitability."