×

UK Economy Slows Rapidly in First Quarter

The UK economy put in a weaker than expected performance in the first three months of the year as GDP growth rates were revised lower led by a faltering services sector, official figures showed.

The Office for National Statistics' final estimate for GDP growth in the first quarter showed the economy growing by a quarterly 0.3 percent compared with 0.6 percent in the fourth quarter.

That was a downward revision from the previous estimate of 0.4 percent and and represents the smallest growth since the first quarter of 2005.

In annual terms, GDP rose 2.3 percent, revised down from 2.5 percent previously. That is down on the fourth quarter's 2.8 percent increase and is the smallest rise since the last three months of 2005.

ONS said late data on the service sector was responsible for the revision Today's figures confirm that the UK economy's first-quarter performance was well below its long-run trend rate of growth, thought to be between 0.6-0.7 percent in quarterly terms.

Analysts polled by Thomson Financial News had predicted no revisions.

The downward revision was due mainly to weak services sector growth which was revised down to 0.3 percent from 0.5 percent previously.. The latest figure is the lowest since the fourth quarter of 1995.

In annual terms services output rose 2.6 percent, down from the previous 2.9 percent estimate.

The service sector makes up about 74 percent of GDP.

Within that, the business services and financial sector, which makes up 28 percent of the economy, performed badly growing by just 0.2 percent in quarterly terms.

Meanwhile industrial output was also revised lower. It fell 0.2 percent in the first quarter. Year on year, industrial output was up 0.4 percent.

Manufacturing, which makes up the bulk of industrial output, saw growth of 0.4 percent. Output growth was flat in the previous quarter.

In annual terms manufacturing production rose 0.9 percent, up from the previous quarter's 0.2 percent growth.

Rounding up the figures, construction output was up 0.4 percent in quarterly terms and 2.4 percent year-on-year. The ONS also gave an indication of price growth in the economy. Its implied GDP deflator for the first quarter rose by 3.0 percent compared with the same period a year earlier. That was up from the fourth quarter's 2.7 percent annual gain.

Today's release also included details on expenditure and output and highlighted that households suffered a 1.0 percent drop in real disposable income -- the biggest fall since the third quarter of 1999 and which reverses the 1.0 percent rise in the last three months of 2007.

The household savings ratio also made for grim reading, coming in at 1.1 percent since the fourth quarter of 1959.

Household expenditure was revised down to 1.1 percent in quarterly terms from 1.3 percent previously but up from the fourth quarter's 0.4 percent increase.

Household spending in annual terms was up 3.0 percent, higher than the previous quarter's 2.4 percent.

Government spending grew 0.9 percent in the first quarter from the fourth, and 2.0 percent year-on-year.

Gross fixed capital formation fell 1.5 percent on the quarter, following the fourth quarter's 2.2 percent rise. It remained 1.4 percent higher in annual terms, sharply down from the fourth quarter's 4.4 percent gain and the slowest growth since the second quarter of 2005.

Inventories fell by 0.4 billion pounds in the first quarter, down from a 2.6 billion pound increase in the previous quarter.

On the trade side, the deficit in net exports narrowed slightly to 11.1 billion pounds from 12.8 billion in the fourth quarter. Exports of goods and services rose by 0.6 percent, while imports fell 1.26 percent.