LONDON (Reuters) – Britain’s financial system was weaker than beforehand thought in 2017, official information confirmed on Thursday, leaving the nation lagging additional behind the global restoration because it prepares to go away the European Union.
The downgrade of the full-year and fourth-quarter progress charges additionally raised questions concerning the power of the financial system because the Bank of England prepares to lift rates of interest.
Gross home product progress slowed to a quarterly zero.four % from a earlier estimate of zero.5 %, wrong-footing economists and lowering 2017 progress as a complete to 1.7 %, its lowest since 2012.
This was nonetheless stronger than most economists feared instantly after Britain voted to go away the EU in June 2016.
But the nation has relied closely on the unexpectedly sturdy global financial system to maintain its financial progress whereas shoppers have been squeezed by larger inflation attributable to the autumn within the pound after the Brexit vote.
Sterling was little modified after Thursday’s information and government bond costs rose barely.
Alan Clarke, an economist at Scotiabank, stated the figures confirmed Britain’s financial system was rising at roughly the tempo the BoE sees its new, decrease pace restrict, that means a charge hike was nonetheless on the playing cards.
But Samuel Tombs, at Pantheon Macroeconomics, stated the info confirmed the central financial institution ought to delay any motion for now.
“The latest GDP data suggest that the economy remains in a fragile state and does not need to be cooled with another rate rise as soon as May,” he stated in a notice to purchasers.
BoE Governor Mark Carney stated this month that charges would in all probability must rise sooner and by considerably greater than the central financial institution had thought in November, when it raised borrowing prices for the primary time in a decade.
Most economists suppose charges will rise once more in May, and monetary markets anticipate an extra enhance, to 1 %, by the top of the 12 months.
Britain’s year-on-year financial progress of 1.four % within the final three months of 2017 was not simply its weakest in 5 years but additionally the weakest of any of the economies within the Group of Seven, together with long-term laggards similar to Japan and Italy.
There have been solely restricted indicators of a rebalancing of the financial system away from shopper demand and towards business funding and web commerce that Carney pointed to as constructive indicators in an look earlier than lawmakers on Wednesday.
Business funding was flat on the quarter and a couple of.1 % larger on the 12 months, each readings coming in weaker than anticipated in a Reuters ballot of economists. Net commerce dragged on progress in most quarters of 2017, although it was constructive on the 12 months.
The BoE stated earlier this month that it anticipated the financial system would develop by 1.eight % this 12 months, sooner than its earlier forecast of 1.6 %, principally due to the power of the global financial system.
Reporting by David Milliken; Editing by Toby Chopra