The 0.5 percent quarter-on-quarter growth in GDP in the final quarter of last year announced by the Office of National Statistics (ONS) was an improvement on the previous quarter’s growth of 0.4 percent, the lowest growth figure for 11 quarters.
While this is a quarter-on-quarter increase in growth, the resulting annual growth for 2015 was 2.2 percent, which is down on the growth seen in 2014 of 2.9 percent. This is a significant drop, although still strong compared with the UK’s peers among developed nations.
The Economist Intelligence Unit predicts 2015 growth of 1.2 percent in France, 1.5 percent in Germany, 2.5 percent in the United States and 2 percent across OECD member nations once official statistics are announced.
While the strength in the economy is encouraging compared with peers, the figures reveal that the UK’s growth is highly dependent on the services sector.
As Allan Monks, a London-based economist with JP Morgan, wrote in an assessment of Thursday’s British GDP figures, “growth in the UK continues to be pegged back by weakness in manufacturing and construction”.
Both these sectors saw declines in 2015 Q4; while the quarterly drop in construction output was just 0.1 percentage points, ONS statisticians use estimates for the final month of any quarterly preliminary GDP figures (in this case December). The 2.2 percent increase in output pencilled in for the final month of last year may prove to be too optimistic, leading to a downward revision when more reliable data becomes available.
Industrial production is struggling for growth (down 0.2 percentage points in Q4) hindered by the continued sluggish growth in the eurozone, which is the UK’s largest export market, and the uncompetitive rate of sterling.
UK growth is being carried entirely by the services sector, and stripping out the disappointing manufacturing and construction figures, one is left with output from the services sector recording a quarterly growth of 0.7 percent.
This is consistent with continued and resilient growth in the economy throughout 2016 but a return to the growth figures of 2014 is unlikely without sustained recovery in manufacturing and construction.
Outside the UK, the continuing low growth in the eurozone and uncertainty over the sustainability of global growth, are likely to depress UK growth.
On the domestic front, continued fiscal tightening by the government and an emerging tightness in the labor market will both make their presence felt in somewhat muted growth throughout the coming year.
As Samuel Tombs, chief UK economist at the economics intelligence firm Pantheon Macroeconomics, commented: “The tighter stance of fiscal policy, sterling’s continued uncompetitiveness and the lack of slack in the labor market will all impede growth.” Enditem