The UK economy is growing at its slowest rate for six years. The first quarter of 2018 saw economic growth of just 0.1% – a virtual standstill. The construction industry dropped by 1.6% in February, due largely to the bad weather. However, the heavy snow of February and March resulted in a 37% rise in energy output. Weather conditions cannot, therefore, be blamed for the overall lack of growth in the UK.
Bad Weather Had Little Effect on UK Economy
According to the Office of national statistics (ONS), the final quarter of 2017 saw UK growth reaching 0.4%. The ONS stated that the bad weather had a “relatively small” effect on UK growth. The figures were unexpected since the UK economy had been growing annually for the past eight years. Also, unemployment is at its lowest level for 40 years.
May Interest Rate Rise Now Unlikely
The low growth rate means that an interest rate increase in May is highly unlikely. This had a negative effect on sterling, with the pound dropping to $1.3775 – nearly 1.5 cents down. Analysts are saying that there is now only around a 25% chance of an interest rate hike. This is in comparison to the 90% likelihood just over a week ago. At that time, the UK economy had been estimated to rise at a faster rate than the final figures actually showed.
UK Growth at 5-Year Low
According to an ONS spokesperson, the UK economy is growing at its slowest rate for over five 5 years. This is largely due to weak manufacturing growth, reduced construction output and “subdued consumer-facing industries.” He also stated that while the unseasonal early spring snow did have “some impact on the economy”, energy and online sales were boosted by the same weather conditions.
While the unseasonably bad weather provides a good excuse for a drop in the UK economy, it is unlikely to be the main reason. The construction industry has been slowing down for some time. This is partially due to local authorities building less social housing. The large deposit now needed for private housing mortgages may also have an impact, particularly with younger buyers. Uncertainty over Brexit conditions has also had an effect. Perhaps ‘Head-in-the-sand’ politics isn’t working too well!