LONDON (Reuters) – Falling business funding and the weakest family spending development in additional than three years marked a nasty begin to 2018 for Britain’s financial system, as official knowledge on Friday confirmed it nearly stagnated.
Despite the Bank of England’s doubts, the Office for National Statistics (ONS) caught to its view that unhealthy climate alone couldn’t clarify why the financial system grew simply zero.1 p.c between January and March, its weakest efficiency since 2012.
Instead, the ONS mentioned it noticed a longer-term sample of slowing development, particularly amongst customers who had been hit by an increase in inflation after the 2016 Brexit vote.
With Britain’s exit from the European Union due in lower than a 12 months and the form of their future relationship nonetheless unsure, business funding dropped zero.2 p.c quarter-on-quarter, its worst efficiency since mid-2015, the ONS mentioned.
Net commerce did not contribute to development and family spending edged up solely zero.2 p.c on the quarter, the weakest improve because the fourth quarter of 2014.
“Overall, the economy performed poorly in the first quarter, with manufacturing growth slowing and weak consumer-facing industries,” ONS statistician Rob Kent-Smith mentioned.
Separate figures from banking trade physique UK Finance confirmed gradual development in shopper lending in April and a YouGov/Cebr survey confirmed a decline in family confidence forward of Brexit.
BoE Governor Mark Carney has mentioned business funding would usually be rising rather more strongly because the world financial system prospers and was being held again by uncertainty about Brexit.
Britain’s financial system stood 1.2 p.c bigger within the first quarter than its degree a 12 months in the past. Only Japan has grown extra slowly among the many Group of Seven wealthy international locations.
“The first-quarter figures probably overestimate the picture of underlying softness in the (British) economy and we should expect a bit of a rebound in the second quarter,” Berenberg economist Kallum Pickering mentioned, pointing to a latest easing of inflation and an increase in wage development.
Sterling and British government bonds had been little modified by the information.
Earlier this month the BoE mentioned it anticipated development within the first quarter would ultimately be revised as much as zero.three p.c.
It has pencilled in quarterly development of zero.four p.c for the present April to June interval.
Still, after the weak first-quarter figures from the ONS, the BoE chopped its forecast for annual common development in 2018 to 1.four p.c from 1.eight p.c beforehand — in keeping with the consensus of economists polled by Reuters.
The ONS mentioned family spending was simply 1.1 p.c larger within the January to March quarter than a 12 months earlier, the weakest annual development in six years.
The financial system was helped by a zero.5 p.c quarterly rise in government spending, the biggest since early 2016.
Writing by Andy Bruce; Editing by Catherine Evans