Schroders Quickview: UK ends 2014 with slower growth
UK growth slowed in the fourth quarter of 2014 but there is potential for the economy to re-accelerate in the first half of 2015.
The initial estimate for UK GDP growth shows the economy slowed to 0.5% in the fourth quarter of 2014, compared to 0.7% growth in the previous quarter. This is slightly softer than consensus estimates of 0.6% growth, but remains robust by historical standards. For 2014 as a whole, the UK economy grew by 2.6% - the fastest annual rate of growth since 2007 and the start of the global financial crisis.
"We forecast the economy to accelerate in the first half of 2015."
Within the details of the latest GDP report, all of the growth in the fourth quarter came from services, while the production and construction sectors contracted. When UK oil and gas is stripped out from GDP, the economy grew at the same pace, which suggests that the negative impact from the fall in oil prices has yet to register in the economic data. Moreover on the upside, the strong retail sales data published last week suggests stronger growth than currently being reported in the GDP figures. Of course, these are only preliminary estimates and may be revised up as well as down.
Looking ahead, we forecast the economy to accelerate in the first half of 2015 thanks to the increase in households’ disposable income from the fall in fuel prices and cuts in household energy bills. We expect households to spend most of these savings, which will boost the volume of retail sales. Meanwhile, with inflation likely to turn negative in coming months, there seems to be little appetite within the Bank of England to raise interest rates in the near-term. However, Governor Mark Carney has warned that the Bank has the ability to look through short-term moves in inflation, and so may yet consider raising interest rates by the end of the year.
Important information: The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This article is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested. Issued by Schroder Investment Management Limited, 31 Gresham Street, London EC2V 7QA, which is authorised and regulated by the Financial Conduct Authority. For your security, communications may be taped or monitored.