UK economy growth revised down
UK growth slower than expected due to weaker and negative growth in consumer-focussed industries within the services sector.
The UK economy is growing more slowly than expected. The Office for National Statistics (ONS) has revised down its earlier estimate for the first quarter of 2017 to 0.2%. ONS initially estimated UK GDP to grow at 0.3%. At the last quarter of 2016, growth was at 0.7% so there were already signs of a slowdown in the economy.
The ONS said the revised estimate was “mainly due to broad-based downward revisions within the services sector”. The new report pointed to a slowdown in growth in “consumer-focussed industries, such as retail sales and accommodation”. This wasn’t helped by negative growth in two of the four main sectors within the services industries, which include distribution, hotels and restaurants, transport, storage and communications. The ONS said “this was partly due to rising prices”.
But In better news, there continued to be strong growth in business services and finance, which helped to offset the negative and weaker growth in other areas. The overall headline, however, is that the economy is slowing down. And even though it’s still being boosted by the services sector as a whole, the industries most reliant on consumer spending is showing either weaker or negative growth. Consumer spending in the UK is expected to slow down further with continued rising inflation since the Brexit vote.
Away from services sector, the ONS report said there was also little growth in construction and manufacturing.
You can see the report at ons.gov.uk.
The UK’s reliance on the services sector
The services sector accounts for nearly 80% of the economy. In an ONS fact sheet about the services sector, the services sector was the major contributor to the economy across all regions but particularly dominated London’s economy at 91%. The services sector was also behind the overall economic recovery following the downturn in 2008. In the figure below from the ONS report, you can see the remarkable recovery of the services trade compared to the construction and production sectors.
There’s no disguising the significance of the services sector to the UK economy. However, a hard Brexit is likely to hit the services sector hard. A report published on Monday by the Centre for Economics and Business Research (Cebr) put the cost of leaving the single market on UK services at between £25bn and £36bn a year. The EU is the UK’s biggest trading partner by far and the single market has been invaluable to the growth of the UK’s services exports to the bloc.
However, experts including those at Cebr and the National Institute for Economic and Social Research (NIESR) believe that even if the UK and EU agreed a free trade deal, it would be unlikely to include services because of the difficulty in replicating the comprehensive nature of the single market. This is made all the more difficult with Theresa May’s red lines on freedom of movement and the jurisdiction of the European Court of Justice.
As we pointed out in our article on the report, even if you take the better scenario of a £25bn loss in services trade, this is still three times as much as what the UK’s contribution to the EU budget (Full Fact has the UK net contribution at £8.6bn a year).