Latest UK GDP data analysed
Commenting on the latest figures, Chris Williamson, chief economist at Markit said:
“UK economic growth in the final quarter of last year was confirmed at 0.5%, according to the ONS’s second estimate of gross domestic product.
“However, the data paints a picture of an unbalanced economy that is once again reliant on consumer spending to drive growth as business shows increased signs of risk aversion. Growth is being supported by firms increasing the wages paid to workers alongside low inflation, which is clearly good for household incomes in the short-term. But for a sustainable recovery, which involves improvements in productivity and profits, we also need to see business investment revive, something which will only happen when business confidence lifts higher again.
“Construction and industrial production numbers were both revised slightly lower to 0.4% and 0.5% declines respectively, with a flat manufacturing sector, but the revisions were not large enough to downgrade the overall economic growth rate. Clearly the service sector remains the main growth driver, having expanded 0.7% (unrevised) in the final three months of last year.
“Households played an important role in boosting the economy, aided by rising pay. Household expenditure and compensation of employees both rose by 0.7%. The big concern was a 2.1% fall in business investment, which points to increased risk aversion amid heightened economic uncertainty; something that the business surveys have also been signalling and which looks to have worsened so far this year.
“While further robust growth is currently being signalled for the start of the first quarter, warning lights are flashing about the extent to which the pace could weaken in coming months due to fragile business confidence. The PMI surveys in fact indicated a slight acceleration of business activity growth in January, but also showed one of the smallest gains in employment for over two years as hiring slowed in response to a deteriorating order book pipeline and increased caution about the outlook.
“Perhaps most worrying was the fall in a key gauge of optimism to a three year low as increasing numbers of firms grew anxious about the outlook, something which once would expect to have intensified in February given the increased uncertainty surrounding ‘Brexit’ over the past week. We will know more with next week’s PMI numbers and the upcoming release of Markit’s February Business Outlook survey results.