Our January 2018 economic statistics piece places much emphasis on the UK’s growth rate compared to that of other G7 countries – and takes a look at why the Bank of England’s interest rate hike may not have been a “one and done” affair.
The UK economy is faring better than expected, January 2018 economic statistics suggest. As the Financial Times’ Gavin Jackson explained at the end of the month, “National income was 0.5 per cent higher during the fourth quarter of 2017 than in the third – a preliminary estimate that was published by the Office for National Statistics (ONS).
“It was modestly ahead of expectations and marked the quickest pace since the end of 2016. Economists surveyed in a Reuters poll had estimated the quarter on quarter rate would clock in at 0.4 per cent, matching the pace from the third quarter.”
At the time, chancellor Philip Hammond claimed the figures were “excellent,”underscoring once again the resilience of the British economy. Our January 2018 economic statistics unveil, however, that growth was “slow and uneven” – a point emphasised by the ONS.
Its head of GDP, Darren Morgan, pointed out that Britain’s uptick in growth was only slight. While the manufacturing sector proved to be the nation’s success story once more, the services sector, which makes up around 80 per cent of UK GDP, faltered. Wage growth also remained low at 2.4 per cent, we found while delving into January 2018 economic statistics.
What’s more, Kallum Pickering of Berenberg recently told the Independent that a strong performance from the rest of the globe meant other G7 countires will have their growth rates revised upwards.
“The UK missed out on the global upswing as Brexit uncertainty weighed on economic activity,” Pickering explained. “Without Brexit, the UK would have roughly expanded by 2.5 per cent in 2017.”
While Brexit is still a subject of heated debate, particularly around whether it should be seen as a boon or opportunity for UK business, bosses have turned their eyes to the Bank of England’s Inflation Report. Within its pages was the announcement that the pace of interest rate increases could accelerate if the economy remains on its current track.
Jacob Deppe, head of trading at Infinox, suggested: “The Bank of England has struck a significantly more hawkish tone compared with three months ago, which appears to be largely related to global inflationary concerns. Where inflation was imported from abroad as a result of the weak Pound in the immediate aftermath of the Brexit vote, now inflationary pressure is building from all sides thanks to global economic growth.
“In November the expectation was that the interest rate hike was a ‘one and done’ affair. Now it seems we could face two rate hikes this year: one in May and another in the Autumn.
“But what was perhaps most interesting from the minutes of the Monetary Policy Committee’s meeting was the unanimous agreement that inflation above two per cent for the next three years was something it was no longer willing to tolerate. It is perhaps worth questioning whether the MPC feels the need to eradicate inflation ahead of the Brexit deadline.”
Bank of England governor Mark Carney, Deppe pointed out, is probably looking to give the bank some buffer with interest rates, providing room to cut when Brexit goes through next March. But interest rates will only rise in May if the economic data continues to point to stronger economic growth than previously anticipated.
“Ultimately, the economy is still very much at the mercy of Brexit, so the bank won’t be in a rush to act if the data doesn’t support it,” he added.