Britain’s economy suffered its weakest growth since 2012 in early 2018, with heavy snow only partly to blame, prompting investors to slash their bets on a Bank of England rate rise next month.
Britain’s economy grew by just 0.1 per cent in the first quarter of 2018, well below the BoE’s prediction of 0.3 per cent and at the bottom end of economists’ forecasts in a Reuters poll, official data showed on Friday.
Sterling tumbled by more than a cent against the US dollar and interest rate futures more than halved the chance of a May rate rise to less than 20 per cent .
‘A very weak Q1 GDP print has ended the chances of a rate hike in May. For us, it means no hike at all in 2018,’ John Wraith, a market strategist at UBS, said.
In year-on-year terms, growth slowed to 1.2 per cent from 1.4 per cent, its weakest since the second quarter of 2012 and a rate likely to keep Britain lagging behind its international peers.
A spokesman for Prime Minister Theresa May said the numbers were ‘clearly disappointing’, but played down suggestions that uncertainty over Brexit was to blame.
The slowdown from already modest quarterly growth of 0.4 per cent in the fourth quarter of 2017 was driven by a sharp fall in construction output.
Unusually heavy snow storms in late February and early March, dubbed ‘the Beast from the East’, were known to have hurt some businesses before Friday’s data. But the Office for National Statistics said the problems went beyond that.
‘While the snow had some impact, particularly in construction and some areas of retail, its overall effect was limited with the bad weather actually boosting energy supply and online sales,’ ONS statistician Rob Kent-Smith said.
Consumer-facing businesses also slowed in the first quarter, the ONS said, probably reflecting higher inflation.
The pound’s fall after the June 2016 Brexit vote eroded households’ disposable income throughout last year.
The scale of the slowdown may unsettle the BoE’s Monetary Policy Committee (MPC), which next week begins considering whether to raise rates on May 10 for only the second time since the 2008 financial crisis.
Until recently, most economists were predicting that the BoE would not be swayed by weak first-quarter data because inflation is running above its target and the unemployment rate is the lowest since 1975.
Markets now price in just one rate rise for 2018, probably by August and almost certainly by November.