Pound slides as UK growth slows to brink of stagnation - as it happened

Graeme Wearden

from on 2018-04-27 16:09 (#3NT2Q)

Economists fear Britain's economy is losing momentum as quarterly growth falls to just 0.1%, the weakest since 2012

The pound has hit an eight-week low today
BREAKING: UK growth slows to just 0.1%
Construction slumps, manufacturing is sluggish
GDP-per-head has shrunk!
Government blames the snow
Opposition blames the government
US grew by around 0.6% per quarter
France grew by 0.3%; Spain by 0.7%

5.08pm BST

Britain's stock market has responded to today's growth slowdown....by hitting its highest level in almost three months.

The FTSE too jumped 80 points to close at 7,502, its highest finish since 31 January.

The drop in the pound has helped the FTSE 100. The British equity benchmark is internationally focused and the slide in the pound has helped the market hit its highest level since early February.

The geopolitical mood is improving after the historic meeting between North and South Korean leaders, as it suggest the two nations are on the road to peace.

4.14pm BST

These charts help tell the (unhappy) story of Britain's economy in the last three months:

3.32pm BST

Our economics editor, Larry Elliott, says there are three reasons why the UK economy slowed to a near-standstill in the last three months.

First, construction had a terrible start to the year, with a drop in output of more than 3%. Without that, growth would have been 0.3%, in line with City forecasts. Activity had been weak in every month, not only in late February and early March, the ONS made clear.

Some analysts said the first-quarter collapse of the construction company Carillion, which had knock-on effects to smaller subcontracting firms, had a bigger impact than the weather.

3.17pm BST

Back in the markets, the pound has hit an eight-week low as traders continue to digest Britain's alarmingly sharp slowdown.

Sterling has shed a cent and a half, to $1.37, its lowest point since the start of March.

Buying sentiment towards the British Pound was dealt a severe blow on Friday, following reports that the U.K economy grew much slower than expected in Q1.

U.K GDP growth slowed to 0.1% in the first quarter, much worse than the expected 0.3%, and its weakest since 2012. While the snow had some negative impacts on GDP, the bad weather really can't bear all the blame - its effects on growth were small.

2.37pm BST

NEWSFLASH: The Bank of England and the European Central Bank are teaming up to protect the financial services industry from Brexit risks.

Details are sparse, but presumably it will look at the issue of access to the EU by City banks after Brexit, passporting, regulatory equivalence, and the huge number of EU-based derivative contracts owned by UK banks.

Today, the European Commission and HM Treasury have asked the European Central Bank and the Bank of England to convene a technical working group on risk management in the period around 30 March 2019 in the area of financial services. The European Commission and HM Treasury will attend as observers and other relevant authorities will be invited on an issue-specific basis.

This technical work is separate from the on-going negotiations on the Withdrawal Agreement between the EU and the UK and from the negotiations on the overall understanding of the framework for the future relationship between the EU and the UK.

Breaking: @bankofengland and @ecb have been asked to set up a "technical working group on risk management" for financial services around March 2019 EU exit date. @hmtreasury and @EU_Commission made the request https://t.co/50Umcveu1D

2.25pm BST

In a nutshell....

Breaking news: US GDP jumps to almost 0.6% between January- March, beating its own forecasts aswell as speeding ahead of UK's limping economy, now basically flat at just 0.1% GDP

2.03pm BST

Here's Moody's take on the American growth figures:

U.S. GDP growth moderated in the first quarter, but at least part of the slowdown is statistical coming from residual seasonality in the data.

Real GDP grew 2.3%, better than expected but below the 2.9% in the fourth quarter and the weakest growth in a year, according to the advanced estimate from the BEA.

1.46pm BST

The US GDP report shows that consumer spending, the biggest portion of the American economy, only rose by 1.1% in the last quarter.

However, business investment remained solid, and trade boosted growth (having been a drag on growth at the end of last year).

GDP growth slowed to 2.3% q/q in Q1, beating expectations. Unsurprisingly, private consumption was weak after strong Q4. Pretty good overall pic.twitter.com/0xIe4enGny

The economy continues to be a highlight for Trump.

Q1 GDP of 2.3% is better than expected, especially since Q1 is typically the weakest of the year.
Economy growing for right reasons: strong consumption and more business investment https://t.co/00d9nD9E8W pic.twitter.com/OFJAHFQdXN

US 1Q18 GDP grew 2.3% vs 4Q17's 2.9%. Weather, protectionism worries, equity market vol. prob all played a part, but remember it was a tough comparison with 4Q17 given the post hurricane rebuild/replace spending boost. As such, pretty good outcome - 2Q will be better

1.36pm BST

NEWSFLASH: America's economy grew much faster than Britain in the first three months of this year.

US GDP expanded by almost 0.6% between January and March, or at an 'annualised rate' of 2.3%.

*U.S. ECONOMY EXPANDED AT 2.3% PACE IN 1Q; EST. 2.0%

1.23pm BST

We're about to discover how America's economy fared in the first three months of this year.

But first, here's our economics editor Larry Elliott on the disappointing UK growth figures:

Britain's economy slowed to a virtual standstill in the first three months of 2018, the weakest period of activity in more than five years.

Office for National Statistics figures showed a sharp contraction in the construction sector, weaker manufacturing growth and a squeeze on consumer spending power contributed to GDP growth of 0.1% in the first quarter.

1.13pm BST

City firm Fathom Consulting reckon there's an evens chance that Britain suffers two quarters of negative growth this year - the official definition of a recession.

50-50 chance of UK recession this year, says Fathom Consulting, after today's weak Q1 GDP data.

"This print is consistent with our long-held view that the UK faces an evens chance of recession this year, and that the MPC will keep interest rates on hold when it meets next month"

12.45pm BST

In another worrying sign, the ONS says there is a "longer-term weakening" in Britain's service sector, particularly in "domestic consumer-facing industries".

Looking into detail of the GDP figs, striking how much the growth of consumer-facing industries has slowed in recent quarters. Households are really cutting back pic.twitter.com/xe4N4EUxXY

12.32pm BST

Here's a chart showing the details of today's UK GDP report:

12.20pm BST

TUC General Secretary Frances O'Grady blames government cutbacks for Britain's slowdown:

"One week of snow doesn't explain a decade of weak growth, dismal productivity and falling wages. It's the avalanche of cuts that has done the long-term damage.

"We need to modernise Britain's infrastructure. The government should set up a National Investment Bank to upgrade roads and rail, and to bring high-speed broadband and clean energy to every part of Britain.

12.14pm BST

The Evening Standard (edited by former chancellor-turned-newspaper editor George Osborne) has pinned the blame firmly on Brexit:

The latest figures out today show gross domestic product grew by just 0.1 per cent in the first three months of this year.

There's been a sharp fall in construction, manufacturing barely grew and the consumer is squeezed by higher inflation.

12.10pm BST

Liz Truss, chief secretary to the Treasury, says Britain is still 'Tiggerish' despite the slowdown (referencing a line from chancellor Hammond's budget speech)

Been talking growth at Millbank. Of course we'd like it to be faster. But economic fundementals sound. Record new businesses. Lowest unemployment since 1975. #allweathertigger pic.twitter.com/45q7MbG7J7

It should be "fundamentals". I apologise for this grave spelling error. It was due to poor weather. https://t.co/yZ8w7Z3tTg

11.46am BST

Today's figures also show that Britain's economy has only expanded by 1.2% in the last year.

That's much slower than average, illustrating how growth has slowed in recent quarters.

How likely is for this first GDP estimate to be revised upwards? Our database suggests that since 2006, the ONS has produced a first annual GDP growth reading which has on average been only 0.11 percentage points lower than the revised one. Therefore, if history repeats itself, the revised GDP growth reading will be only slightly higher at 1.2%+0.11%=1.31% which is equally disappointing!

MPC members cannot, and will not, ignore the fact that the latest data for GDP growth and inflation are substantially weaker than their most recent predictions. Annual GDP growth of 1.2% is far below their forecast in February 2018 that suggested 1.65% was the most likely outcome for the first quarter of 2018. Likewise, the figure for 2018Q1 CPI inflation, of 2.7%, is also far lower than their prediction of 2.92% reported in February 2018.

11.21am BST

Theresa May's official spokesman has opined:

PM's spokesman says today's weak GDP figures (0.1% growth in Q1) are "clearly disappointing"; but "the fundamentals of our economy are sound" (copyright G Brown).

10.54am BST

Alfie Stirling, Head of Economics at the New Economics Foundation, makes an important point - the link between wages and economic growth has frayed badly since the financial crisis:

"Today's GDP estimates from the Office for National Statistics are again disappointing, and fall far short of what would be expected from a healthy economy.

"But worse still is that GDP growth of any kind is no longer leading to higher real wages. Since 2010, GDP growth has become 'decoupled' from growth in pay with the latest estimates showing that total pay in February was the lowest monthly level seen for 2 years.

10.44am BST

Danielle Haralambous, UK analyst at the Economist Intelligence Unit, isn't buying the 'snow excuse' either.

She says:

Growth was surprisingly soft in the first quarter of 2018, even lower than our expectation, which factored in the impact of bad weather in February-March.

This hit output in the construction sector particularly hard, but there is more to the story than snow, and the slowdown will be a big consideration in the Bank of England's deliberations next month.

10.39am BST

Ivan Petrella, associate professor at Warwick Business School, says the UK economy is showing signs of weakness - and Brexit may well be to blame.

Today's GDP number confirms a recent trend of slow growth and a weakening economy.

"One is tempted to attribute a large part of that to uncertainty following the Brexit referendum. In fact, after the initial boost to growth associated to the fall of the pound, the UK economy considerably under-performed with respect to its European partners last year and shows all the signs of heading for the same trend this year.

10.36am BST

Here's Rob Kent-Smith of the Office for National Statistics on Britain's shock slowdown:

"Our initial estimate shows the UK economy growing at its slowest pace in more than five years, with weaker manufacturing growth, subdued consumer-facing industries and construction output falling significantly.

"While the snow had some impact on the economy, particularly in construction and some areas of retail, its overall effect was limited with the bad weather actually boosting energy supply and online sales."

10.21am BST

John McDonnell MP, Labour's Shadow Chancellor, says Philip Hammond should blame his own government, not the weather, for Britain's alarmingly weak growth this year.

McDonnell argues that the UK urgently needs fresh investment:

"Today's disappointing GDP figures further confirm that continued Tory austerity cuts are weakening growth.

"The Chancellor will want to blame this all on a bit of bad weather, but the ONS say this had a limited impact. The truth is that the last eight years of Tory economic failure has allowed our economy to be left exposed.

10.17am BST

UK chancellor Philip Hammond has blamed the 'Beast from the East" for Britain's weak growth, saying that "exceptional" bad weather had some impact.

One problem, chancellor.... the Office for National Statistics says the snow only had a "generally small" impact.

ONS: "overall effect of the snow was limited"
Hammond: "Today's data reflects some impact from the exceptional weather"
https://t.co/KV2Fs47cKT pic.twitter.com/eCPwBHqi26

10.13am BST

Tej Parikh, senior economist at the Institute of Directors, says Britain's GDP figures are "particularly disappointing".

Growth has slowed much more sharply expected, and he singles out Britain's exit from the EU as a factor:

"The icy weather slowed industrial deliveries, grounded construction projects, and pushed consumers off the high-street, so some cooling was expected. But it clear that some further underlying weakness persists in the economy.

"It should hopefully bounce back this quarter. Some of the business activity lost due to the snow will be recovered over the coming months, leading to a rebound in the figures. Consumer spending power will also be bolstered by the fall in inflation.

10.09am BST

Dr Adam Marshall, Director General of the British Chambers of Commerce (BCC), says Britain's economy is suffering from political paralysis.

"Sadly, the latest GDP figures confirm what we have been saying for some time: the UK is stuck in the global growth slow lane, while other countries race ahead.

"Westminster politicians need to start focusing their attention on a much stronger, more proactive drive to boost growth and investment. While the 'Beast from the East' clearly had an impact in the first quarter, the underlying slow-growth trend is real cause for concern.

10.04am BST

Most worryingly, Britain's economy has actually shrunk - once you adjust for population increases.

Although gross domestic product has risen by a meagre 0.1% in the last three months, it contracted by 0.1% on a per-capita basis.

Weak growth in #gdp today up just 0.1% on the quarter and more importantly GDP per person is down -0.1% pic.twitter.com/joQZOgktqw

10.02am BST

10.00am BST

The ONS is adamant that this slowdown can't just be blamed on the icy weather that blasted Britain over the winter:

Snow had some impact on #GDP in Q1, particularly in construction and some areas of retail, but bad weather had limited effect overall and gave some boost to energy supply and online sales https://t.co/MQQTEbiJUq

9.51am BST

There were gasps on the City's trading floors (and in at least one newsroom) when the unexpectedly weak UK growth figures were released.

Jeremy Cook, Chief Economist at WorldFirst, says the slowdown in growth caused "a sharp intake of breath".

0.1% is the lowest quarter on quarter growth since Q4 2012 with particular weakness seen in construction and services sectors - sectors worth over 80% of the UK economy. There are some caveats within this number of course; it is only the advance reading and therefore subject to revision and the poor weather that the UK suffered will have had a large effect on demand, particularly private consumption. That being said, March's numbers were horrific, are unlikely to be part of the sample yet and any revision to this advance number could easily be lower as opposed to higher."

"It's not just UK voters who could call themselves the JAMs - Just About Managing - it now seems that the wider UK economy is in that predicament too."

When Theresa May spoke about the JAMs, did you think it would mean the whole UK economy?

UK: Disappointing first quarter GDP growth (qoq: 0.1% , instead of 0.3% expected by us and consensus according to Bloomberg). Results in 1.2% yoy growth and triggers downward revision of full year forecast to 1.1% (previously 1.3%, consensus 1.5%) Source: @ONS pic.twitter.com/9ljPMPFTuA

#UK #GDP #growth slowed even more than generally feared to just 0.1% q/q in Q1 as savaged by Beast from the East. Extent of slowdown will fuel concerns that economy has lost underlying momentum. Annual growth rate down to 1.2%, weakest since Q2 2012.

9.44am BST

Sterling is tumbling as City traders react to the news that the UK economy barely grew in the last three months.

The pound has lost a whole cent against the US dollar to $1.3815, its lowest level since 9 March. Investors are wagering that the Bank of England will be reluctant to raise interest rates next month, when the UK economy looks so fragile.

U.K. GDP slowed to 0.1% in first quarter https://t.co/IZYs25l3lp pic.twitter.com/CraUYMjZSz

9.36am BST

The Office for National Statistics reports that Britain's construction sector shrank sharply in the last three months, dragging the UK growth rate down to just 0.1%.

The ONS says:

9.31am BST

BREAKING! UK economic growth slowed sharply in the first three months of 2018, with GDP rising by just 0.1%.

That's the weakest quarterly growth since the last three months of 2012, and a worse result than expected.

9.27am BST

Tensions is building as the City prepares for the first estimate of UK GDP to be released, in just three minutes...

Stand By Yours Desks! UK GDP is up next and after the poor weather in Q1 affecting construction output especially seems likely to be lower than the 0.4% trend.

9.26am BST

Economist Catherine Colebrook has written about the shortcomings with GDP in the Guardian today.

She says it fails to measure whether poverty is being reduced, whether the environment is being protected, or if people are happier (themes that Bobby Kennedy picked up in 1968).

If we want to understand whether the economy is really delivering for its citizens, we need some new indicators. The Institute for Public Policy Research (IPPR), where I am the chief economist, is proposing a dashboard of five outcome indicators, to be updated annually, which would directly measure our progress against the outcomes the public wants the economy to deliver - broadly shared prosperity, justice and sustainability.

Our chosen indicators are the distribution of the gains from growth; poverty rates among children and adults; levels of wellbeing among individuals at different income levels; the gap between the median income of the poorest region of the UK and the richest; and the gap between projected carbon emissions and the cost-effective path to decarbonisation.

9.23am BST

Suren Thiru of the British Chambers of Commerce is also expecting a UK slowdown....

#UK Q1 2018 #GDP data (first estimate) out today at 9:30am - latest #ChamberQES suggests that UK GDP growth slowed to 0.2%-0.3% in Q1from growth of 0.4% in Q4 2017: https://t.co/XS1cjMNGbA pic.twitter.com/9lPmiJfKHc

9.10am BST

Simon French, chief economist at Panmure Gordon, says there's a risk that Britain's growth rate slowed sharply in the first quarter of this year, to below the City forecast of 0.3%.

If so, that would cut the chances that the Bank of England raises interest rates next month.

8.53am BST

It's now 50 years since Robert F. Kennedy gave his now-famous speech explaining why gross domestic product is a flawed measure that tracks "everything, except that which makes life worthwhile".

Here's a Youtube clip of the speech, given to the University of Kansas in March 1968, three months before Kennedy's assassination.

It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children.

Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.

8.37am BST

The UK Treasury have created a short video explaining GDP:

New growth stats are published today at 9.30am - find out what #GDP means and why it matters pic.twitter.com/WMYlS6nD2f

8.19am BST

Sylvia Walter, senior economist at insurance company Swiss Life, says the French government shouldn't panic about the slowdown:

Advance GDP reading Q1 2018 for France confirms slowdown indicated by #PMI. Bad weather hit production in Q1. Strikes in Q2 to dampen activity as well. Growth to approach potential from elevated level in 2017. Nothing to worry about. Keep up reforms! #France @EmmanuelMacron pic.twitter.com/0woYM1GTww

French GDP growth slowed to 0.3% (0.254%, actually) quarter on quarter in Q1, from 0.7% in Q4 - Private consumption and investment keep driving growth - In Q2 railway strikes will certainly depress growth

France's economy saw growth slow sharply in the first quarter as winter storms ripped through the country, hitting factory production.

Gross domestic product expanded 0.3 percent, the weakest in more than a year and less than half the 0.7 percent pace recorded in the previous three months. It's also slightly below the 0.4 percent estimate of economists surveyed by Bloomberg.

8.15am BST

Just in: Spain's economy has posted another quarter of solid growth.

#SPAIN Q1 PRELIMINARY GDP Q/Q: 0.7% V 0.7%E; Y/Y: 2.9% V 3.0%E
*Link: https://t.co/CNp8UV1p28
*Spanish resilience should limit the a for Q1 GDP. It should be in the [0.4%-0.5%] range, a from an upwardly revised print of 0.7% in 4Q.
*ECB's forecast for 1Q18 was +0.7%. pic.twitter.com/DzlKZRZ2cl

Spain GDP up 0.7% in Q1, doing the heavy lifting for the Eurozone.

8.03am BST

Bad weather, falling business investment and weaker export growth have combined to slow the French economy.

[Annual] Growth of above 2.5 per cent in the second half of 2017 was never going to be sustained for long, and one-off factors such as weather also likely dented consumers' spending in Q1.

7.45am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Today we get a major healthcheck on the global economy with new growth figures for Britain, the United States, France and Spain.

Q1 GDP is out today, but will likely be affected to the severe weather conditions in the quarter. Our economists are in line with consensus (0.3% q/q), but markets would probably be tolerant of a downside miss in particular, given the weather-related uncertainty.

Economic growth in the first quarter is forecast to have slowed to 2% on an annualised basis, down from 2.9%, as consumers spending braked sharply.

This is expected to more of a bump in the road rather than the start of a full on change in direction for the US economy, which remains supported by a tightening labour market and sizeable tax cut.

Here's your soft patch, French edition. pic.twitter.com/CvATHmaNuQ

Now with quarterly GDP growth rates it's different, obviously. pic.twitter.com/qbptgr3INx

Potential sovereign ratings: -

Belgium at Moody's
Finland at Moody's
Germany at S&P
Italy at S&P
Netherlands at Fitch
UK at S&P & Fitch

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