According to the UK’s Office for National Statistics (ONS), the original estimate for Q1 growth in 2015 was spot-on at 0.3%. The figure represents a significant slowing of the UK economy from the pace seen in Q4 2014 which came in twice as high.
A more detailed analysis of the UK’s economic performance suggested that growth was stymied by higher imports and a slowdown in the service sector which dominates the UK economy. The service sector grew in Q1, but at just 0.4% which marked its weakest performance since 2012. On the trade balance front, imports increased by 2.3% over the Q4 level, but exports contracted by 0.3%. The upshot of this was that the UK’s trade deficit with the rest of the world widened from £9.6 billion in Q4 to £13.2 billion in the first three months of this year. According to ONS, this deficit knocked the equivalent of 0.9% of the GDP estimate.
Analysts had expected an upwards revision of GDP for Q1 to 0.4% whilst the Bank of England still expects the figure to come in even higher, at 0.5%, when all of the quarterly data is available at the time of the final revision of the figures. The chief economist for the British Chambers of Commerce is also more Bullish about the state of the UK economy in Q1. David Kern believes that the ONS figure “…understates the true momentum in the economy. When you dive into the detail, there is a mixed picture" he noted. He pointed out that production and construction figures had been adjusted upwards, whilst the trade deficit had widened.
It is also possible that uncertainty over the outcome of the UK general election (held earlier this month) had a deleterious effect on the economy. Most pundits were predicting that no party would hold an overall majority after the election which would have plunged the country into weeks of horse trading as parties jockeyed for alliances which would have delivered a working majority. It was widely predicted that the opposition Labour party would have formed a new government in some kind of coalition arrangement. In the event, the Conservatives won a narrow majority: they are regarded as the most “business friendly” of the mainstream UK political parties.