UK economy grew by just 0.1% in Q1 2018, slowest rate of growth in five years

The UK economy expanded at its slowest rate in more than five years in the first quarter of 2018, according to the Office for National Statistics (ONS).

Gross domestic product (GDP) grew by just 0.1% in the first quarter of the year.

Economists had forecast expansion of 0.3%.

The economy was hit by a decline in construction work and sluggish manufacturing activity.

Manufacturing growth slowed down to 0.2% while construction fell by 3.3%.

The extreme weather conditions in the first quarter had a relatively small impact on growth, the ONS said.

ONS spokesman Rob Kent-Smith, said the “overall effect was limited, with the bad weather actually boosting energy supplies and online sales.”

The largest contributor to GDP growth were the services industries, increasing 0.3% in the first quarter. However, the longer-term trend still shows a weakening in services growth.

Rob Kent-Smith, head of national accounts at the ONS, said: “Our initial estimate shows the UK economy growing at its slowest pace in more than five years with weaker manufacturing growth, subdued consumer-facing industries and construction output falling significantly.

“While the snow had some impact on the economy, particularly in construction and some areas of retail, its overall effect was limited with the bad weather actually boosting energy supply and online sales.”

Philip Hammond responds to the GDP report

In a statement, Chancellor of the Exchequer Philip Hammond said: “Today’s data reflects some impact from the exceptional weather that we experienced last month, but our economy is strong and we have made significant progress.

“Our economy has grown every year since 2010 and is set to keep growing, unemployment is at a 40 year low, and wages are increasing as we build a stronger, fairer economy that works for everyone.

“We are committed to locking in a bright future and better quality of life for everyone which is why we are investing in our people, building new infrastructure, and supporting our vital public services.”

Shadow chancellor John McDonnell said: “The chancellor will want to blame this all on a bit of bad weather, but the ONS say this had a limited impact. The truth is that the last eight years of Tory economic failure has allowed our economy to be left exposed.

“It’s clear to everyone except Philip Hammond that our economy is in need of increased investment and working families are struggling with the cost of living and the burden of increasing household debt.”

Likelihood of interest rates hike in May has dropped

Ben Brettell, senior economist at Hargreaves Lansdown, was quoted by the BBC as saying that the possibility of a rate hike in May looks less likely after the latest Q1 GDP results.

“As recently as last week markets were pricing in a near 90% chance that the Bank of England would raise rates next month… today the market’s saying there’s just a 25% chance that rates will move in May,” Brettell said.