UK Economy Slowdown – UK GDP SlowDown in First Quarter

• April 28, 2017
• By Pete Nisbet
• 0

A UK economy slowdown has been reflected in a low growth rate of 0.3% in the first quarter of 2017. This is the slowest rate of UK growth since the same quarter of last year. According to the UK Office for National Statistics, this growth reduction related to a 0.3% growth rate in the service sector compared to 0.8% at the end of last year. The GDP Gross Domestic Product) increased by 0.7% in the last quarter of 2016 followed by a UK GDP slowdown in the first quarter of 2017.

A reduction in GDP growth was not unexpected because of a gradual slowdown in consumer spending.  A major reason for this was due to a reduction in the strength of the UK pound against both the dollar and euro, and the accompanying inflation. These are not the only factors affecting rising prices, but irrespective of the reasons for it, UK consumers have been spending less than normal at this time of year.

Effect UK Currency Exchange Rate Drop

The UK pound exchange rate has a significant effect on growth in the UK. Although it has increased in value after the recent election statement, it is still well below the levels of last year. The drop in its value against the currencies of Europe and North America increases the cost of imports. Add to that the UK’s loss of manufacturing, and it cannot balance the two.In the three months to February 2017, the UK’s balance of trade (Exports – Imports) was -£35.35 billion.  In the three months to February 2016, it was -£28.17 billion. The UK is consequently a net importer, and the reducing exchange rate

In the three months to February 2017, the UK’s balance of trade (Exports – Imports) was -£35.35 billion.  In the three months to February 2016, it was -£28.17 billion. The UK is consequently a net importer, and the reducing exchange rate will therefore be disastrous to the economy of the UK.

Effect of Exchange Rate on Import and Export Prices

The percentage increase in import prices is reflected in inflation of the price of consumer goods. A reduction in the value of the pound sterling results in a relative increase ion the dollar and euro. What would once have cost $100 to import will now cost

This inflation rate is rising faster than the increase in pay rises.  This results in a reduction in consumer spending, which rebounds back as a reduction in income to manufacturers and importers – so work it out! A slowdown in the UK economy.