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Financial News: UK Growth At 1-Year Low As 'Brexit' Weighs

UK Growth At 1-Year Low As 'Brexit' Weighs On Spending

04/28/2017 - 08:44:00 (RTTNews)

(RTTNews) - The U.K. economy expanded the least in a year at the start of 2017, reflecting a notable slowdown in the service sector as consumers curbed their spending amid the Brexit uncertainty and rising inflation.

Gross domestic product grew only 0.3 percent in the first quarter from the previous three months, preliminary estimates from the Office for National Statistics showed Friday.

This was the weakest expansion since the first quarter of 2016. Quarterly growth was forecast to moderate to 0.4 percent from 0.7 percent in the fourth quarter.

The slowdown in GDP growth will no doubt prompt some suggestions that 'Brexit' is now hitting the economy hard, Ruth Gregory, an economist at Capital Economics, said.

Prime Minister Theresa May has called for an early general election on June 8, hoping to strengthen her mandate in 'Brexit' talks.

It was evident that the growth slowdown was largely the consequence of increasingly squeezed consumers markedly reining in their spending, IHS Markit economist Howard Archer said.

This showed up in the marked slowdown in services output, where the consumer-facing sectors saw a clear loss of momentum, Archer added.

Following the marked first quarter slowdown, Archer said 2017 will remain highly challenging for the UK economy.

Despite high inflation, the Bank of England is widely expected to keep its interest rate at a record low 0.25 percent throughout this year. The central bank has projected 2 percent growth for 2017.

The production-side breakdown of GDP showed that the growth in the dominant service sector eased to a 2-year low of 0.3 percent from 0.8 percent in the previous quarter.

Total production climbed 0.3 percent after rising 0.4 percent. Driven by auto industry, manufacturing output gained 0.5 percent.

Farm output rose 0.3 percent in the first quarter. At the same time, construction output advanced only 0.2 percent after expanding 1 percent in the fourth quarter.

On a yearly basis, GDP growth accelerated to 2.1 percent in the first quarter from 1.9 percent in the fourth quarter. However, this was slightly slower than the expected 2.2 percent.

Another report from the ONS showed that services output increased 0.2 percent in February from January.

In the three months to February, services output increased by 2.5 percent compared with the same period a year ago.

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