UK GDP growth beats expectations

Economic output expanded by 0.5 per cent in the final three months of 2017, compared to the 0.4 per cent expected.

That left UK GDP growth for the full year at 1.8 per cent, a smidgen down on the 1.9 per cent number achieved in 2016.

Azad Zagana, senior economist at Schroders said this is the lowest level of GDP growth achieved in the UK since 2012.

He said the slightly higher growth rate is unlikely to lead to a change in interest rate policy from the Bank of England.

Higher levels of GDP growth should place upward pressure on inflation, as the level of wealth in the economic has notionally increased, theoretically leading to higher spending, and inflation.

But Mr Zagana said the uncertainty ahead of the UK leaving the EU is such that rates are unlikely to rise before 2019, when the UK is scheduled to leave.

Ben Brettell, senior economist at Hargreaves Lansdown said manufacturing sector of the economy showed the strongest growth, an expansion of 1.3 per cent, while the services sector remains the largest sector of the economy.

Ian Kernohan,  economist at Royal London said “Manufacturing output has shown a strong recovery, however it is the dominant services sector which remains the main driver of growth in the UK economy.”

Mr Brettell noted that the construction sector is in recession. This is a negative signal for the economy, because if firms are not confident enough to build new property, it is because they fear they won’t be able to sell or rent it.

That indicates related sectors of the economy, such as services, will suffer, as lawyers, estate agents and surveyors have less work, and the retail sector, where the goods to fit out the new buildings would not be bought.

If demand for commercial property is weak, then it indicates firms are not expanding, or being created, which is likely to have a negative impact on the employment data in the coming years.

David.Thorpe@ft.com