UK GDP Preview: Heading towards confirmation of previous downward revision

The UK economy rose less than originally estimated in the final quarter of 2017 with downwardly revised 0.4% quarterly growth rate expected to be confirmed in final GDP reading scheduled for Thursday, March 29 at 8:30 GMT.

Business investment was flat in the fourth quarter of 2017 on a quarterly basis, but business investment increased 2.1% when compared to same period a year ago. Final estimated of fourth-quarter GDP is expected to see a further downward revision to service business investment that is expected to fall 1.2% on a quarterly basis while increasing 1.9% over the year, down from 2.1% estimated previously.

As the UK economy prepares to leave the European Union, the economy stall in terms of growth rate making the UK is a clear lagger behind other major economies. For the whole year of 2017, the UK GDP rose 1.7%, down from 1.9% in 2016.

The economic slowdown in the UK is affected greatly by Brexit-related economic issues that are weighing greatly on UK households. Sterling’s depreciation after the Brexit referendum in June 2016 increased the inflation rate to the cyclical peak of 3.1% y/y in November last year, pushing real, inflation-adjusted wages into negative territory. Household spending rose 1.6% for the whole year of 2017, the slowest growth rate since 2012.

In terms of the outlook for the UK GDP, the Office for Budget Responsibility predicted in Spring Budget that the UK economy will slow down to 1,5% in 2018 with the cyclical bottom of 1.3% annual increase in 2019 and 2020 before accelerating to 1.4% in 2021 and 1.5% in 2020. 

That compares with German economy growing by 2.2% in 2017, French GDP raising 1.9%, and the US economy expanding by 2.3% in 2017. With 1.7% GDP growth rate in the UK in 2017, it is clear that the UK economy is heading to though times after Brexit materializes in March 2019 even with the transition period ending in December 2020.