UK Q1 Growth Figures Paint Gloomy Picture

What do the Q1 growth figures mean for the UK economy?

The UK’s first quarter GDP figures did not make pretty reading. Although a slowdown had been expected, the 0.1% quarterly growth rate was significantly lower than most economists and other commentators had been expecting. This has ended any spring rate rise notion, and like everything else in UK economics, there could be serious implications for the ongoing Brexit talks.

Goodbye Rate Rise?

General economic consensus has expected the UK to follow the US and raise interest rates several times in the coming years. This reflects both an unwinding of the high inflation rate that has been seen since the UK voted to leave the European Union in June 2016 and a desire to wean consumers and businesses alike off the extremely cheap credit that they have had access to over the past decade or so.

These moves are only possible if the underlying fundamentals of the UK economy are strong. Unfortunately, the detail released by the ONS suggests that this is far from the case.

The poor growth figures are not a blip caused by the extremely poor weather that the country experienced in late March. Rather, they represent a slowing services sector and a contracting construction sector. This leaves the Bank of England with very little room for manoeuvre and means that a May rate rise, seen as a dead cert by many as recently as March, was kicked into the long grass.

The Brexit Dimension

A crucial vote on Customs Union membership is expected in parliament in the next few weeks and it is likely that this dataset will embolden some MPs who believe that leaving the Customs Union would do significant damage to the UK’s economy. Businesses would react well to news that the UK’s Brexit may be softer than expected and any such decision could cause a rebound in economic certainty in the short term.

The news from the ONS is just one of the factors that make predicting the future of the UK financial markets extremely challenging. As with so much else, the long-term outcome is highly dependent on the type of Brexit that the country chooses to pursue.