UK GDP growth slows to 0.3% in first quarter

Gross domestic product expanded by 0.3% in the first three months of the year, missing expectations for 0.4% growth and slower than the 0.7% growth seen in the final quarter of last year.

It was also the slowest rate of expansion since the first quarter of 2016.

The ONS attributed the slower growth rate mainly to the services sector, which grew by 0.3% compared with 0.8% growth in the final quarter of last year. Services account for around 78% of the UK economy.

“Retail trade and accommodation services were the main contributors to the negative growth in this sector. These industries were impacted by increases in prices, as reported in the latest Retail Sales and Consumer Price Inflation publications. These falls were partially offset by an increase in food and beverage service activities, which grew by 2.7%,” the ONS said.

On the year, GDP expanded by 2.1%, up from 1.9% in the fourth quarter of 2016, but below estimates of 2.2%.

The pound was trading up 0.2% versus the dollar at 1.2933 after the release, nudging up from 1.2927.

Chris Williamson, chief business economist at IHS Markit, said: “The consumer-led deterioration had been widely expected. Official data had already shown retail sales falling to the greatest extent for seven years in the first quarter amid signs of spending being curbed by rising prices.

“PMI survey data for the first three months of the year had meanwhile indicated weakness being largely confined to consumer sectors, and household finance surveys have deteriorated. Official data, such as industrial production and construction industry output, had also weakened in the early months of the year.”

Neil Wilson, senior market analyst at ETX Capital, said: “Sterling bears facing a short squeeze today as the pound ramped up against the dollar ahead of the GDP numbers and sustained gains despite the data not excelling. With the market so heavily short some sellers are giving up the ghost but finding bid clear of $1.30 will be hard in the near-term.

"Growth was soggy at 0.3% q-o-q, 2.1% over the year, but that has not deterred the bulls as they conspire to push cable higher."