* Current account gap below all Reuters poll forecasts
* Q4 GDP stays at +0.4 pct, ONS hikes 2017 GDP to +1.8 pct
* Savings ratio in 2017 hits new record low
* Separate data shows weak picture for housing market
(Adds comments from economists, GfK survey) LONDON, March 29 (Reuters) - Britain's current account deficit fell sharply last year, official data showed on Thursday, potentially easing concerns about its reliance on foreign investors to fund itself as Brexit nears. The Office for National Statistics also said Britain's economy grew at its slowest pace in five years in 2017, leaving it the weakest among Group of Seven countries as the decision to leave the European Union pushed up inflation and weighed on consumer spending. However, there were some more promising signs for 2018 as the dominant services sector picked up a bit in January and economists said they expected that an inflation hit to consumers would ease this year. The current account deficit stood at 18.4 billion pounds ($25.9 billion) in the fourth quarter, below all forecasts in a Reuters poll of economists, and the shortfall in the third quarter was revised down sharply. That left the 2017 deficit at 4.1 percent of GDP, the smallest since 2011 and much lower than a record 5.8 percent in 2016 as the global economic recovery, and the weak value of the pound, boosted earnings on British investment abroad. "While still too high for comfort, this is a very welcome reduction given that the elevated deficit is a potential source of vulnerability for the UK economy particularly if there was any major loss of investor confidence in the UK," Howard Archer, an economist with EY Item Club, a forecasting group, said. Victoria Clarke, at Investec, said it was too early to say the deficit would improve steadily. Bank of England Governor Mark Carney has said Britain's balance of payments shortfall leaves it reliant on the "kindness of strangers". The country's official budget forecasters expect the gap to fall only slowly and they warned this month that the confidence of overseas investors could be damaged without a smooth Brexit.
SLOWDOWN The ONS confirmed gross domestic product grew 0.4 percent on the quarter - slowing from 0.5 percent in the third quarter - and 1.4 percent compared with the last three months of 2016. For 2017, the ONS edged up its economic growth estimate to 1.8 percent but that was still the slowest since 2012. The ONS said disposable household incomes, adjusted for inflation, only inched up 0.1 percent in the fourth quarter and household spending in 2017 grew at the weakest pace since 2011. Last year's savings ratio was the lowest on record at 4.9 percent of gross disposable income. The ONS said households were net borrowers for the first time since records began in 1987. But there are signs the squeeze on households is easing. Inflation appears to have peaked and wage growth has picked up, helping a consumer confidence survey by opinion poll firm GfK to hit a 10-month high in March. "The GfK survey suggests that consumers see some light appearing at the end of the tunnel in the form of a revival in spending power," Andrew Goodwin, an economist at Oxford Economics, said. The BoE has signalled it intends to raise interest rates again soon, having increased them for the first time in a decade in November. It believes Britain's economy, with its weak productivity growth record, will generate excessive inflation pressure with only modest growth. Separate data showed Britain's housing market remained soft, reflecting the financial squeeze on many households. The BoE said the number of mortgages approved for house purchase fell more than expected in February. Mortgage lender Nationwide said house prices in Britain rose at the slowest pace in seven months in March. ($1 = 0.7115 pounds)
(Additional reporting by Andy Bruce and Elizabeth Burden; graphic by Andy Bruce Editing by Richard Balmforth Writing by William Schomberg; editing by John Stonestreet)