26th February 2015
Official figures have confirmed that UK economic growth slowed to 0.5% quarter-on-quarter in the final three months of the 2014.
Numbers from the Office for National Statistics released on Thursday showed GDP expansion during the final quarter slipped from 0.7% in previous three months, and a peak rate of 0.8% in the second quarter.
However year-on-year growth improved to 2.7% in the fourth quarter from 2.5% in the third, taking it to its highest level since the fourth quarter of 2007.
Overall GDP growth of 2.6% in 2014 was the best performance since 2007 and up from 1.7% in 2013. It also meant that the UK was the strongest expanding G7 economy in 2014, having been one of the best performers in 2013.
Research group IHS Global Insight predicts GDP growth will hit 2.7% in 2015. On a quarter on quarter basis, it sees UK GDP growth coming in at 0.7% in the first quarter then easing back to 0.6% in the second quarter as economic activity is dampened modestly by heightened political uncertainty around May’s general election.
Howard Archer, chief UK and European economist at the firm said: “Assuming that there is no prolonged political uncertainty after the general election, we expect growth to improve to 0.7% quarter on quarter in the third quarter and 0.8% quarter on quarter in the fourth quarter.”
“With oil prices expected to stay very low and earnings growth now trending up, the economic fundaments currently look broadly positive for the United Kingdom in 2015 – especially for consumers. Furthermore, we expect Eurozone growth to see improvement in 2015, which will help UK exports.”
In terms of what the latest statistics mean for monetary policy, Archer believes confirmed GDP growth of 0.5% in the fourth quarter of 2015 does not significantly change the outlook for when the Bank of England will act on interest rates. Archer expects the Bank will raise rates from 0.50% to 0.75% around the turn of the year.
“Much will clearly depend on how wage growth and inflation expectations develop, in addition to just how well growth holds up and how much inflation picks up later in the year.” he added.