UK economic growth slows in 2015: what the economists are saying

Leading economists assess outlook for 2016 after figures show GDP growth rate falling from 2.9% in 2014 to 2.2% last year

The UK economy expanded 0.5% in the final months of 2015 as expected, but for the year as a whole, growth was down markedly.

Official figures show GDP grew 2.2% last year after rising 2.9% in 2014. That slowdown came against the backdrop of a waning global economy.

Given the difficult international background, it is not surprising that the UK failed to sustain the more impressive economic growth seen in 2014. Services remains the main driver of the economy, while production and construction are down.

The GDP figures demonstrate that the recovery remains fragile. While the services sector continues to grow, production is close to stagnation and the construction sector is now in recession. Every effort must be made to support both these sectors as we seek to rebalance the economy.

Despite some global headwinds, the UK economy continued to deliver solid growth of 0.5% in the fourth quarter of 2015, close to its long-term trend rate. As in previous quarters, this reflected the strength of domestic demand and private services sectors, while manufacturing and construction output were broadly flat.

Looking ahead, strong job creation, low energy prices and positive real income growth should keep consumer spending growth at a decent rate of about 2.5% in 2016. This should allow the UK economy as a whole to deliver continued steady growth of just over 2% this year, despite recent financial market volatility.

Manufacturing ended the year on a flat note, rounding off a disappointing year for the sector. However, the picture remains very much a sectoral story, with those sectors exposed to oil and gas struggling, while those consumer facing, such as automotive, are faring much better on the back of a healthy labour market and strong wage growth.

While we expect the sector to grow this year, the risks are mounting. Along with the oil price remaining low, slower growth in emerging markets, especially China, is likely to hamper export prospects.

Our Deputy Chief Economist Zach Witton comments on today's #GDP and #manufacturing figures from @ONS #ukmfg pic.twitter.com/XflbvV73sD

After volatility in the financial markets during the first few weeks of the year, these GDP figures should settle nerves about the health of the real economy. Growth of 0.5% a quarter is far from remarkable, but with services continuing to power the recovery, and housebuilding expected to undergo something of a revival as the year progresses, this expansion looks sustainable.

Across the economy, high levels of debt remain a concern - especially at this point in the cycle. This debt bubble can still be deflated with effective monetary policy, and it would be wise to take action before it becomes unmanageable.

The upturn masks an unbalanced economy and a slowing pace of expansion, with the annual rate of growth slipping to the weakest for almost three years. Survey data also point[s] to a further loss of momentum in December.

Uncertainty over 'Brexit', weak overseas growth and financial market volatility are all creating an unsettling business environment and point to downside risks to the economy in 2016. The coming year could easily see the pace of economic growth slow further from last year's 2.2% expansion, and the chances are growing that we will see yet another year in which interest rates are left at their record low of 0.5%.

UK GDP +0.5% in Q4, but driven (once again) entirely by services according to ONS pic.twitter.com/dxJHKsitv5

The figures mean that GDP in 2015 as a whole rose by 2.2% - respectable, but still a fairly significant slowdown from 2014's 2.9% rate. And the economy faces a number of headwinds this year, potentially including the EU referendum and rising inflation and interest rates. So we doubt that we will see a strong pick-up in growth this year. Nonetheless, we don't expect a further slowdown either. And we are still more optimistic than most about the prospects for growth next year.

Sub-trend growth suggests one of Carney's conditions for rate rise - growth set to use up remaining slack - not met pic.twitter.com/ckqWdvfLiE

It's a big concern how fragile the recovery still looks, and how unbalanced it is, with growth almost entirely dependent on services.

We need a stronger recovery that's built to last and that reaches all sectors of the economy. The weakness of manufacturing and construction is no surprise given the government's lack of a proper industrial policy to boost the economy and protect crucial industries such as steel.

This morning's UK GDP figures provide a timely counterweight to some of the recent economic pessimism ... Although this was in line with median expectations, given the singular focus on the downside risks in recent weeks, many in the market were no doubt braced for a weaker outturn.

Today's data provides welcome confirmation that the economy continued to grow broadly in line with its trend. It remains to be seen whether this resilience can be maintained in the wake of the recent market turmoil. Given the strength of the labour market, exceptionally loose monetary conditions and the positive impact on consumer and business spending of the fall in oil prices, we believe it will.

The outlook for the UK in 2016 remains fragile and we expect a slowdown in growth compared with last year. The public could easily vote to leave the European Union in a referendum later this year, if the latest opinion polls give an accurate picture of voting intention.

While the longer term implications of 'Brexit' are debatable and depend on a wide range of factors, the short-term implications would undoubtedly be messy. If Brexit happens, Cebr envisions a sharp fall in the value of sterling, as well as further volatility in other financial markets. There would also be negative impacts on overseas demand for property and foreign direct investment - in the short term at least.

Monetary policy will remain highly accommodative for most of the year and help sustain or even accelerate consumer credit growth - already at decade highs - and boost consumption.

In addition, consumer confidence remains elevated and stable, with the negative effects of continuing economic and financial market turbulence being offset by record high employment levels and continued increases in house prices. Finally, further falls in the price of oil and strong competition in the supermarket sector are driving down the cost of basic necessities such as food and oil, freeing up household income to spend on other goods and services.