Growth slows in Britain and the US as GDP reports miss forecasts - as it happened

Graeme Wearden

from on 2017-04-28 14:54 (#2MM1G)

Growth figures from America, Britain and France have all been weaker than expected today

3.53pm BST

Phew! Economists and investors are catching their breath after a busy day dominated by growth figures from the eurozone, the UK and America.

There's some disappointment that Britain, the United States and France all grew slower than expected in January to March. But there's no panic.

3.35pm BST

Here's today's Nasdaq record high:

Nasdaq hits fresh record high, driven up by Alphabet and Amazon earnings https://t.co/Xgl0gOkx9O pic.twitter.com/z0S5GuV0Bg

3.16pm BST

Larry Fink, the head of fund management firm BlackRock, has said it's "terrible" that America grew slower than France in the last quarter.

Fink is speaking at the Morningstar Investment Conference in Chicago, where he expressed concern about the US slowdown.

Our final keynote this conference is Larry Fink from @blackrock make your way to the main stage to hear his industry insights. #MICUS pic.twitter.com/e9oFZLwNK3

Larry Fink doesn't pull punches on GDP #s : "we are the slowest growing country in the G7 ... that's really bad, we're slower than France."

"Our economy is growing slower than France." BlackRock CEO Larry Fink at today's Morningstar Conf

2.56pm BST

The US stock market isn't too concerned by the growth figures.

The Dow Jones industrial average has dipped in early trading, but the technology-focused Nasdaq hit a new record high.

2.51pm BST

The weather is copping some blame for the slowdown in US growth.

Unusually mild conditions meant Americans spent less money heating their homes and offices during the winter, which equates to lower economic activity.

"Warm weather meant consumers weren't spending as much on electricity and natural gas and home heating.

Government spending can also be affected by seasonal factors, and defense spending is especially volatile."

2.25pm BST

Here's Paul Ashworth of Capital Economics, explaining how weak consumption dragged the American economy back down in the last three months:

The slowdown in the first quarter this year was principally due to a near-stagnation in consumption, which increased by only 0.3% annualised.

Household spending was held down by a drop back in motor vehicle sales from a near-record high at the end of last year and the unseasonably warm winter weather, which depressed utilities spending. But consumer confidence is unusually high and real personal disposable income increased at a 4% annualised pace in the first quarter. Consumption growth will rebound in the second quarter.

2.23pm BST

Another former Democratic official argues that we shouldn't panic about the US growth figures.

Jason Furman, who chaired president Obama's council of economic advisors, points out that growth will likely rebound in the April-June quarter.

If Q2 comes in at its current track of 3.8% (a big if) then the first 1/2 of this yr will--once again--be normal. So stop hyperventilating.

2.09pm BST

It may be tempting to contrast Donald Trump's promise to "Make America Great Again" with the news that US economic growth has hit a three year low on his watch.

This certainly isn't the start that Trump had in mind during the campaign, when he boasted that America could grow by more than 4% per year if he were in charge.

We haven't yet had the expected fiscal stimulus from Trump, the effects of which may not be seen until the end of this year or the start of 2018.

While investors might be disappointed with the reading, it has been a steady start to the year with inflation looking benign, a resilient jobs market and positive PMI data, all likely to boost returns for investors."

If you're blaming Q1 GDP on Trump you're not only economically illiterate but further blinded by your politics.

2.00pm BST

Jared Bernstein, a former advisor to VP Joe Biden, points out that America's economy has posted solid enough growth over the last year:

Yr/yr Q1 GDP growth 1.9%. That's a less noisy measure for Q1 and on recent trend.

1.52pm BST

Some context:

Just in: U.S. GDP grew at an annual rate of just 0.7% in the first quarter of the Trump presidency, down from 2.1% in Q4. @welt pic.twitter.com/S4Zn3pgrlC

1.48pm BST

Here's Associated Press's take on the US growth figures:

The U.S. economy turned in the weakest performance in three years in the January-March quarter as consumers sharply slowed their spending. The result repeats a pattern that has characterized the recovery: lackluster beginnings to the year.

The Commerce Department says the gross domestic product, the total output of goods and services, grew by just 0.7% in the first quarter following a gain of 2.1% in the fourth quarter.

1.38pm BST

Breaking! America's economy has slowed sharply, posting its weakest growth in three years.

US misses! Economy grew at 0.7% pace in 1Q; less than 1.0% expected. Slowest pace in 3yrs. https://t.co/bstAS6fvlD pic.twitter.com/4QQcAx4j4e

The U.S. economy just grew by its slowest pace in 3 years. https://t.co/dBpaAGO8aA pic.twitter.com/9xQawUoBja

1.25pm BST

Three down, one to go....

After disappointing GDP figures from the UK and France, but stronger growth in Spain, we're now turning to America to see how its economy fared in the first quarter of this year.....

1.21pm BST

Time for a quick recap of this morning's UK growth report.

Economists are warning that the Brexit slowdown has begun, after Britain's economic growth has more than halved to its lowest rate since the EU referendum.

One quarter of slow growth is not definitive proof that the economy is on the ropes. But the pressure on consumers' incomes looks set to build this year as retailers pass on higher import prices; we still expect CPI inflation to exceed 3% in the second half of this year.

12.49pm BST

The pound has not been rattled by the slowdown in UK growth.

Instead, sterling hit a new seven-month high of $1.2957 after the GDP figures were released.

The announcement of an 8th June general election was a game-changing event for sterling.

Sterling will face Brexit challenges but its day of reckoning has been pushed further into the future."

12.25pm BST

The chancellor has now tweeted about the GDP figures:

Choice facing the British ppl: strong & stable Govt w/ T May to lock in econ progress vs J Corbyn's coalition of chaos-a risk to our economy

12.18pm BST

This chart, from CBI economist Alpesh Paleja, shows why the UK growth rate almost halved in the last quarter.

Detailed sector breakdown of slower Q1 UK GDP growth. Weakening in consumer-facing sectors chimes with recent deterioration in real earnings pic.twitter.com/zi1B1QMWMl

12.02pm BST

The looming shadow of Brexit means the UK economy is unlikely to accelerate over the next couple of years, warns Morgan Stanley economist Melanie Baker.

She writes:

We expect this slower quarterly pace of growth to persist in 2017, reflecting our assumption that higher inflation will dampen real consumer spending growth and an assumption of subdued business investment as Brexit approaches

11.48am BST

John McDonnell MP, Labour's Shadow Chancellor, has responded to the news that growth slowed to 0.3% the last quarter:

"Today's GDP figures reveal the threat to living standards under the Tories.

"Growth for the first three months of 2017 was only half of what was expected. It comes on the back of new forecasts last week from leading independent forecasters showing growth and earnings expectations slashed and inflation revised up."

The quietest day so far on the Tories election grid, nobody is out - coinciding with bad 0.3% GDP figure. This is no coincidence.

11.10am BST

TUC General Secretary Frances O'Grady fears that the alarm bells are ringing in the UK economy, now that the consumer slowdown is underway.

"Today's GDP figures do not bode well for the future.

"Consumer spending has been propping up the UK economy. But with pay packets squeezed, families have less money to spend on the high street.

GDP growth is at its weakest since the referendum. But the Govt doesn't care. My @thetimes column today: https://t.co/6y2v89X1NQ pic.twitter.com/4hikrBCdJB

10.57am BST

The slowdown in Britain's economy will prevent the Bank of England raising interest rates until at least 2019.

That's according to analysts at Barclays, who have issued a good note on the GDP figures.

In our view, given rising inflationary pressures and the increasing likelihood of negative real wage growth in the coming months, household consumption will continue to ease over the course of 2017. All in all, we believe this strengthens our view that the Bank of England MPC will leave its monetary policy stance unchanged over our forecast horizon (until end-2018).

"The UK economy has begun to feel the post-referendum slowdown" so Bank of England to keep rates on hold until at least 2019 - Barclays

10.41am BST

Kalum Pickering of Berenberg says we shouldn't panic about the slowdown in the UK economy, even though growth halved in the last quarter:

While the deceleration looks a little scary, the UK's trend rate is around 0.4%. The expansion is entering its eighth year and the labour market is at full employment. Against this backdrop, growth with some volatility around its trend rate during the middle of the cycle is more than satisfactory.

10.35am BST

Via Berenberg Bank, here's a neat chart showing UK growth by sector over the last decade:

10.29am BST

Suren Thiru, head of economics at the British Chambers of Commerce (BCC), believes Britain is entering a "sustained period of more sluggish growth".

June's snap general election won't help the situation, he warns:

Inflation is expected to continue to rise, increasing the squeeze on consumer spending power and firm's profit margins, pushing growth lower. The BCC's own Quarterly Economic Survey confirms that inflation is a key risk to the UK's growth prospects, with businesses under increasing pressure to raise prices. Uncertainty over the impact of Brexit and the distraction of a General Election are also likely to weigh on economic activity over the near term.

10.18am BST

Chancellor Philip Hammond has just been interviewed about the GDP figures by Sky News, outside the Treasury.

10.05am BST

The slowdown in Britain's service sector is worrying, because services firms make up around 80% of the economy.

Dutch bank ING says households are being squeezed, and fears that Brexit uncertainty will compound the problem:

The significance of today's weaker UK GDP growth:$GBP #Brexit pic.twitter.com/unwobSu6hi

9.58am BST

Here's my colleague Katie Allen's take on today's GDP figures:

Britain's economy slowed more than expected in the opening months of this year, with GDP growth slipping to 0.3% from 0.7% the previous quarter as the post-referendum rise in living costs took its toll on British households.

The news adds to signs that the resilience seen for the UK economy in the wake of the Brexit vote is now waning and will come as a blow to Theresa May's government as it banks on a solid victory in the snap election on 8 June.

9.56am BST

Alan Clarke of Scotia Bank sums up the slowdown:

To put the pace of growth into context, this is like driving away for the bank holiday weekend, hitting traffic and slowing from 70mph to 30mph" and it is starting to rain...

This weakness is likely to be blamed on Brexit. That is probably fair, albeit in an indirect sense. The fears leading up to Brexit were that growth would stall due to a dive in confidence, hiring and investment. That hasn't happened. What did happen is the pound dived, pushing inflation sharply higher and that is causing consumer spending and hence overall growth to slow.

The good news is that the surge in inflation is probably temporary and the squeeze on growth should pass. However, it is probably going to take another year before growth on back on an upwards trajectory.

9.53am BST

Nancy Curtin, chief investment officer at Close Brothers Asset Management, says that weak pay growth and the rising cost of living is hurting the UK economy.

"After a GDP reading which defied expectation at the end of last year, all eyes were on the Q1 data to see whether the Brexit effect would have affected UK economic performance at the start of 2017. Rising inflation and slow wage growth have dampened consumer demand and reduced retail spending, which were helping drive growth last year after Britain's vote to leave the EU.

On the other hand though, the increased attractiveness of sterling in the wake of the referendum has boosted manufacturing and international exports, making headway in rebalancing the UK economy.

"Today's print of 0.3% represents a sharp fall from the giddy pace of growth we witnessed a last quarter. Rising inflation seems to be having a negative impact on the parts of the economy exposed to the consumer. Looking ahead, we expect that pressure on real household incomes will keep growth subdued.

"Today's decline in GDP demonstrates the short term uncertainty being felt among both businesses and consumers. Businesses like certainty and with the impact of the snap General Election and the evolving EU negotiations, perhaps some economic impact is inevitable.

However, we believe that the outlook offers room for optimism, based on the resilience the economy has demonstrated since the EU Referendum.

Big drop off in retail activity the main explanation for the drop in GDP growth in Q1. Consumers no longer powering ahead pic.twitter.com/f2o2EHQiz8

Bad news for government. Gdp down to 0.3% this quarter. Was 0.7% last quarter. Economic slowdown looms.

9.45am BST

Here are the key points from today's report into the UK economy:

9.44am BST

Today's GDP repost shows that Britain's economy is suffering the impact of higher inflation.

Retailers, hotels and restaurants all suffered falling growth, after being forced to hike prices due to higher input costs (because sterling fell sharply after the EU referendum).

Retail trade and accommodation services were the main contributors to the negative growth in the distribution, hotels and restaurants sector. These industries were impacted by increases in prices.

9.38am BST

Britain's dominant service sector has suffered a significant slowdown in the last quarter.

Services output expanded by just 0.3% in January-March, down from 0.8% in October-December.

9.34am BST

9.30am BST

Breaking! Britain's economic growth slowed sharply in the first three months of this year.

UK GDP expanded by just 0.3% in January to March, the Office for National Statistics says.

9.29am BST

A former top advisor to ex-chancellor George Osborne tweets:

One of those GDP days when govt don't really mind either way - Strong: obviously good news. Weak: time for "strong & stable" leadership...

9.26am BST

Tension is building in the City, with just four minutes to go until the UK growth figures are released.

Connor Campbell of SpreadEx says a surprise reading can't be ruled out....

After surprising everyone with 0.7% growth in the final quarter of 2016, the UK is expected to have seen a sharp drop-off in Q1 2017, analysts estimating that the country's economy expanded by just 0.4% across the first 3 months of the year.

The GDP readings for the last few quarters, however, have tended to beat the Brexit-inspired gloom, so there is room for a shock this morning.

8.59am BST

Zing! Sterling has just hit its highest level against the US dollar since last September.

The pound has jumped by 0.3% this morning to $1.2939, a seven-month high.

Bank of America hikes its sterling forecasts to $1.32 by end of 2018: "The day of reckoning has been pushed further into the future" pic.twitter.com/nXrKm0gHsV

8.47am BST

Gross domestic product is the economics world's favoured way of estimating growth and output. But it's not a perfect measure.

GDP tries to pin down how well, or badly, a country is performing by estimating how much was produced, spent, and earned across its economy. It show the output across services, industry, construction and agriculture, household and government spending, business investment, and net trade.

It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl.

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.

8.23am BST

It's worth remembering that the UK's economy has actually held up pretty well since the EU referendum.

GDP rose by 0.5% in July-September last year, accelerating to 0.7% in October-December, dashing forecasts that a Brexit vote would quickly trigger a recession.

8.06am BST

Breaking! Spain has shown Britain how it's done, by reporting strong growth figures for the last three months.

#Spain #GDP Growth Rate year-on-year Flash at 3% https://t.co/1F1UQ01OYG pic.twitter.com/3Bc12iIDp6

8.00am BST

Today's UK growth figures, due at 9.30am, are significant for several reasons.

First, they're the most important economic data to be released before the general election on June 8th. So a strong GDP report would bolster the Conservative Party.

Even with the expectation of activity recovering in March, the broader narrative remains that we look for GDP growth to slow in 2017.

7.57am BST

Here's a good chart from the FT, showing how France's growth has fallen back:

France's economy loses momentum at the start of 2017, with GDP growth falling to 0.3% in the first quarter https://t.co/pM9PopgxCv pic.twitter.com/hdSdDeAY6a

7.31am BST

There's a flurry of banking news this morning too.

Royal Bank of Scotland, which is majority-owned by the UK taxpayer, has posted its first quarterly profit since 2015. It made 259m in the three months to March, beating forecasts.

Gvt stake in Lloyds now down below 1% - contrast with 73% stake in RBS which has reported first quarterly profit since 2015 today

7.23am BST

We've just learned that the slowdown in Britain's housing market is gathering pace -- another sign that the economy may be losing momentum.

Nationwide has reported that prices FELL in April for the second month running (on a seasonally adjusted basis). And on an annual basis, prices only rose by 2.6% - the slowest rate of increase since June 2013.

"There may also be more fundamental reasons for the slowdown. House price growth has been outstripping earnings growth for a sustained period of time, steadily eroding affordability on a number of metrics. For example, the typical house price is currently 6.1 times average earnings, well above the long run average of 4.3 times earnings, and close to the all-time high of 6.4 times recorded in 2007.

7.09am BST

France's economy was dragged back by disappointing trade figures (because exports fell while imports rose).

This breakdown of the GDP figures shows how net trade (commerce exterieur) was negative for growth.

Exports decreased in the first quarter of 2017 (-0.7% after + 1.4%), particularly in transport equipment. At the same time, imports accelerated (+ 1.5% after + 0.8%). In particular, purchases of refined petroleum products are rebounding and those of other industrial products are growing more vigorously. Overall, foreign trade weighed on growth, at -0.7 point, after a contribution of +0.2 point the previous quarter.

Q1 #French #GDP #growth limited to 0.3% q/q as net trade sharply negative. Consumer spending only edged up 0.1% q/q as energy demand weak (1

6.58am BST

Bert Colijn, senior colleague at ING Bank, says the French growth figures are a disappointment:

#French Q1 GDP growth disappoints somewhat at 0.3% QoQ compared to 0.4% expected. Maybe soft indicators were too optimistic? Spain due at 9.

French GDP breakdown encouraging tho. Consumption slows (+0.1% QoQ), but capex picks up strongly again (+0.9% QoQ). https://t.co/yvH10KHZaa

French GDP: a huge potential if the next government provides companies with visibility and (fiscal) stability.

6.53am BST

Breaking: France's economy grew slower than expected in the first three months of this year.

French GDP expanded by just 0.3%, missing the 0.4% which economists had predicted.

6.41am BST

Good morning.

We're about to get a deluge of economic data that will show how some of the world's largest economies have performed in 2017.

First batch of EZ Q1 GDP numbers out today. I fear a big hit from net trade in France, don't tell Le Pen ;). Spain? 0.7%-to-0.8% as usual?

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