GDP data, March 2017 - PwC comments

John Hawksworth, chief economist at PwC, comments on the latest UK GDP and national accounts data: 

“On the surface, today's national accounts data reconfirmed the earlier picture that the UK economy remained relatively robust in the second half of 2016 following the Brexit vote. GDP growth was unrevised at 0.7% in the fourth quarter and, despite a small downward revision to third quarter growth, estimated annual GDP growth in 2016 remained unchanged at 1.8%. 

“Beneath the surface though, some more worrying signs are evident. Fourth quarter growth was driven primarily by a 0.7% real increase in household spending, while business investment fell by 0.9%. And this relatively strong household spending growth occurred despite a decline in real household disposable incomes. As a result, household net borrowing in the fourth quarter rose to over £11 billion, its highest quarterly level since comparable records began in 1987. This pushed the household savings ratio in Q4 2016 down to its lowest level since comparable records began in 1963. 

“In short, the UK consumer increasingly appears to be living beyond their means and this cannot continue forever as inflation rises further above target over the course of this year, squeezing real earnings. This reinforces our view that we will see a gradual slowdown in the UK economy this year as consumers pull in their horns, despite some offset from stronger net exports. 

“Early signs of this slowdown were evident in the small decline in services sector output between December 2016 and January 2017, confirming earlier indications from weaker retail sales growth in January. While monthly data can be erratic, the underlying three month moving average trend also points to a gradual slowdown in services sector growth since last October. Given the dominance of services in the modern UK economy, this will feed through into slower overall GDP growth in the first quarter of 2017 and beyond.”

Ends.

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