Sterling tumbles as UK growth hits five-year low

The UK economy grew at its slowest pace for -more than five years in the first quarter, as it was hit by a significant drop in construction work and sluggish manufacturing activity.

The Office for National Statistics (ONS) said gross domestic product (GDP) grew by 0.1 per cent in its initial estimate for January to March. It was the weakest quarterly growth since the fourth quarter of 2012 and worse than experts had predicted. Economists had expected a slowdown to 0.3 per cent.

French economic growth also cooled sharply in the first quarter, falling to 0.3 per cent, the weakest in more than a year and less than half the 0.7 per cent pace recorded in the previous three months

While many thought the so-called Beast from the East would have hit Britain’s economy hardest, official figures showed that recent snowfalls had a relatively small effect on growth.

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ONS spokesman Rob Kent-Smith said: “Our initial estimate shows the UK economy growing at its slowest pace in more than five years, with with weaker manufacturing growth, subdued consumer facing industries and construction output falling significantly.

“While the snow had some impact on the economy, particularly in construction and some areas of retail, it overall effect was limited with the bad weather actually boosting energy supplies and online sales.”

The pound tanked against the dollar following the news, falling 0.7 per cent to $1.38. Against the euro, sterling was down 0.3 per cent at €1.14.

Construction was the biggest drag on GDP, having experienced its most dramatic fall since the second quarter of 2012 — dropping 3.3 per cent over the first three months of the year. Manufacturing growth slowed to 0.2 per cent , though that was partially offset by a rise in energy production due to colder weather. The UK’s powerhouse services sector — which accounts for around 79 per cent of the economy — was the biggest supporter of GDP growth in the first quarter, having increased by 0.3 per cent.

However, the longer term trends point to weakening of service sector growth. It comes amid a squeeze on consumer finances from higher inflation, triggered by the Brexit-induced collapse in the pound, and slow wage growth.

The UK economy is still struggling to bounce back to levels seen in the final quarter of 2016 when GDP rose by 0.6 per cent .

The economic slowdown is likely to play a part in determining the course for interest rates this year. Rate-setters will also have to consider recent easing in inflation rates, with the Consumer Price Index (CPI) of inflation having dropped back from 2.7 per cent to 2.5 per cent in March — marking a one-year low.

Bank of England Governor Mark Carney has already warned markets that a rate rise in May is not a certainty.

PA