Business

The accidental rebalancing of the UK economy

The accidental rebalancing of the UK economyā€¯

The Commerce Department says gross domestic product - the country's total output of goods and services - grew by just 0.7 percent in the first quarter following a gain of 2.1 percent in the fourth quarter.

"Still, the report will mark a rough start to the administration's high hopes of achieving 3 percent or better growth, not the kind of news it was looking for to cap its first 100 days in office", Guatieri said in a note to clients. U.S. GDP grew at a revised 2.1 percent rate in the fourth quarter of 2016, 3.5 percent in the third quarter, a 1.4 percent in the second quarter, and 0.8 percent rate in the first quarter. Sluggish consumer demand and a fall in government expenditure caused GDP growth in the first quarter of 2017 to slump to 0.7%, as against 2.1% in the previous quarter (December 2016).

Real disposable income also grew 1% in the quarter, indicating Americans had more money in their pockets to spend.

The British Banker's Association piled onto the string of poor news with a report showing that the annual growth in consumer borrowing had slowed.

The Bureau of Economic Analysis has calculated annual growth in real GDP going back to1930.

According to Berenberg Bank projections, in the coming years the United Kingdom economy will be growing at 1.8 percentpc per year as a outcome of Brexit, instead of 2.2 percentpc annual growth had Brexit not been happeneding. The "second" estimate for the first quarter, based on more complete data, will be released on May 26.

Analysts widely believe that the weak growth in the first quarter might be a blip, and expect growth to pick up pace in the rest of the year.

The U.K. is the second-biggest passenger car market in Europe after Germany | Carl Court  Getty Images
The U.K. is the second-biggest passenger car market in Europe after Germany | Carl Court Getty Images

At the same time, the business investment picture was mixed. Because almost a third of this quarter occurred under the final days of the Obama administration, Trump will likely turn the focus of this dismal report to his predecessor.

Banco Santander recently raised its 2017 growth forecast to 2.2% from 1.7%, predicting a slowdown in consumption will be less harsh than previously thought.

The labor market is near full employment and consumer confidence is near multi-year highs, suggesting that the mostly weather-induced slowdown in consumer spending is probably temporary.

First-quarter GDP also tends to underperform because of difficulties with the calculation of data that the government has acknowledged and is working to rectify.

Private economists are more skeptical.

The employment cost index rose 0.8 per cent for the quarter - which Shepherdson noted was the biggest gain in almost a decade - two tenths above an analyst consensus forecast. Federal government spending fell 1.9 percent, led by a 4.0 percent decrease in defense, and state and local government spending declined 1.6 percent. Most experts believe the economy is picking up. They see growth just above 2 percent this year.



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