UK economy lags behind G7 after 2017 growth rate cut

UK economy lags behind G7 after 2017 growth rate cut
* GDP revised down to +0.4 pct qq in Q4
* Full-year 2017 growth rate also cut to 1.7 pct
* Trade drags on growth, business investment disappoints
* Economists split on need for BoE rate hike
* Sterling, gilts little changed

(Adds economist and market reaction, detail from report)
By David Milliken and William Schomberg
LONDON, Feb 22 (Reuters) - Britain's economy was weaker than
previously thought in 2017, official data showed on Thursday,
leaving the country lagging further behind the global recovery
as it prepares to leave the European Union.
The downgrade of the full-year and fourth-quarter growth
rates also raised questions about the strength of the economy as
the Bank of England prepares to raise interest rates.
Gross domestic product growth slowed to a quarterly 0.4
percent from a previous estimate of 0.5 percent, wrong-footing
economists and reducing 2017 growth as a whole to 1.7 percent,
its lowest since 2012.
This was still stronger than most economists feared
immediately after Britain voted to leave the EU in June 2016.
But the country has relied heavily on the unexpectedly
robust global economy to sustain its economic growth while
consumers have been squeezed by higher inflation caused by the
fall in the pound after the Brexit vote.
Sterling was little changed after Thursday's data and
government bond prices rose slightly.
Alan Clarke, an economist at Scotiabank, said the figures
showed Britain's economy was growing at roughly the pace the BoE
sees its new, lower speed limit, meaning a rate hike was still
on the cards.
But Samuel Tombs, at Pantheon Macroeconomics, said the data
showed the central bank should delay any action 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 said in a note to clients.
BoE Governor Mark Carney said this month that rates would
probably need to rise sooner and by somewhat more than the
central bank had thought in November, when it raised borrowing
costs for the first time in a decade.
Most economists think rates will rise again in May, and
financial markets expect a further increase, to 1 percent, by
the end of the year.

Britain's year-on-year economic growth of 1.4 percent in the
last three months of 2017 was not just its weakest in five years
but also the weakest of any of the economies in the Group of
Seven, including long-term laggards such as Japan and Italy.
There were only limited signs of a rebalancing of the
economy away from consumer demand and towards business
investment and net trade that Carney pointed to as positive
signs in an appearance before lawmakers on Wednesday.
Business investment was flat on the quarter and 2.1 percent
higher on the year, both readings coming in weaker than expected
in a Reuters poll of economists. Net trade dragged on growth in
most quarters of 2017, though it was positive on the year.
The BoE said earlier this month that it expected the economy
would grow by 1.8 percent this year, faster than its previous
forecast of 1.6 percent, mostly because of the strength of the
global economy.

(Reporting by David Milliken; Editing by Toby Chopra)

2018-02-22 12:31:45

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