UK GDP figures show growth slowed sharply in Q1 2017, amid a fragile political situation, Brexit and falling real wages

Today saw the release of the second estimate for GDP and revised figures for business investment in the first quarter of 2017.  They show that growth slowed sharply in the first quarter of the year, and that on a per capita basis, the economy was flat.  This confirms our dubious status as the slowest growing economy in the G7.  In an atmosphere of considerable political uncertainty, this a worrying sign that the economy is losing momentum.

Compared with Q4 2016 there has been a sharp slowdown in the service sector, which accounts for nearly 80% of the economy.  Household spending growth, which has been one of the motors of the recent recovery, has now slowed in every quarter over the past year.

Net trade continues to act as a drag on the economy – defying those who expected the fall in sterling last year to help the economy.

What kept the economy afloat was a bounce in capital investment.  These figures, which are often very volatile, reflect increased house-building.  While beneficial in meeting Britain’s acute housing shortage, this is unlikely to improve productivity.  Meanwhile business investment – which is much more likely to improve productivity – grew at a lacklustre rate of just 0.6%, while investment in ICT fell sharply.  Levels of business investment have been broadly flat since the end of 2014.

Looking ahead, with the uncertainty surrounding Brexit, the fragile political situation, and falling real wages, further economic weakness is likely.