UK GDP Data Revised Lower, Pound Sterling Ignores it

The ONS has revised lower UK growth for the first quarter of 2017.

Quarter-on-quarter was revised down to 0.2% from a previous estimate of 0.3%.

Annualised growth sites at 2.0%, down from a previous estimate of 2.1%.

The slowing economy has been blamed squarely on rising prices.

“Consumer-facing industries such as retail and accommodation fell and household spending slowed. This was partly due to rising prices. Construction and manufacturing also showed little growth, while business services & finance continued to grow strongly,” report the ONS.

So the weaker Pound is having a real impact on consumer spending it would seem. This is understandable as the cost of imports rises and is quickly passed on to consumers by retailers.

The real blow though comes from evidence that the fall in Sterling has not had the positive impact on exports that we would expect it to.

"There were few signs of the much hoped-for pick-up in the external sector in response to sterling’s slide. In fact, net trade deducted 1.4 percentage points from growth as exports fell by 1.6% q/q and imports rose by 2.7% q/q," says Ruth Gregory, UK Economist at Capital Economics. "The fall in exports appears to have been largely driven by erratic factors rather than a deterioration in the underlying net trade position."

Still, this is of little consolation to those who hoped that the one silver lining of the fall in the Pound would be a rebalancing of the economy to benefit exporters.

"The rebalancing away from the consumer is not happening, and the UK’s exporters have not been able to capitalise on the massive 20% devaluation in sterling last year. If the export industry can’t benefit from such a large currency boon, then the sector looks fairly doomed to me," says Kathleen Brooks at City Index.

A bright spot was however to be found in data showing there was some more encouraging news on business investment, which posted a decent 0.6% quarterly rise.

The reaction by Pound Sterling to the news was limited with the currency maintaining recent levels in what has become quite a flat market as we look towards the end of the month of May.

Concerning the outlook, we would expect economic growth to pick up again in the second quarter with leading surveys suggesting economic activity is picking up again.

Indeed, Gregory is looking for a long-awaited pickup in exports to be revealed too:

"There is a good chance that quarterly GDP growth will rebound in Q2. And the improvement in survey measures of export orders and investment intentions supports our view that the external and corporate sectors will, in time, help to compensate for soft consumer spending growth in the quarters ahead."

But we will have to wait another month before the official assessment from the ONS is released.