U.K. Economy in 2017 Grew at Slowest Pace in Five Years

By Wiktor Szary and Jason Douglas Features Dow Jones Newswires

The U.K. economy in 2017 grew at the slowest pace in five years, highlighting how uncertainty linked to its looming departure from the European Union means Britain is not reaping the full benefits of the recent upsurge in global growth.

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The U.K. economy expanded by 0.5% on the quarter in the final three months of 2017, an annualized rate of 2.0%, the Office for National Statistics said Friday.

That was the fastest quarterly rate of expansion for the year as a whole, and exceeded the expectations of economists polled by The Wall Street Journal, who forecast quarterly growth at 0.4%. But overall, the British economy grew by 1.8% last year, the slowest rate of expansion since 2012.

The slowdown in the British economy comes as the world's major economies are enjoying a rare spell of synchronized growth. The International Monetary Fund estimates that U.S. economic growth accelerated to 2.3% on the year in 2017, with the eurozone economy also speeding up, expanding by 2.4% annually.

Official estimates of fourth-quarter economic growth in the U.S. and the eurozone are due to be published later this month.

Still, growth in the U.K. last year was significantly above the prediction of economists and the Bank of England in the immediate aftermath of the Brexit vote in June 2016, who had expected the economy to grow by just 0.8%. The better-than-expected performance reflected unanticipated consumer resilience and a revival in manufacturing.

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The economy's prospects for 2018 look mixed. Bank of England Governor Mark Carney has said uncertainty surrounding Britain's future relationship with the EU, its largest trading partner, is weighing on business investment.

U.K. consumers, a key engine of growth for the largely domestic-driven economy, have seen their spending power eroded as inflation, spurred by the pound's steep depreciation in the wake of the 2016 referendum, has outpaced growth in wages, which is beginning to weigh on spending. In January, shares in the department-store company Debenhams PLC plunged after it said that like-for-like sales in its U.K. stores dropped by 2.6% in the final four months of the year, citing weaker demand in discretionary areas. More recently, shares in flooring retailer Carpetright PLC lost nearly half of their value after the company issued a profit warning, saying a drop in consumer confidence hurt sales.

Official figures showed that retail sales last year grew at the slowest pace since 2013. December saw the weakest monthly growth in sales since June 2016, the month Britons voted to leave the EU.

Britain is scheduled to leave the European bloc in March 2019, putting an end to more than four decades of economic and political integration. The ruling Conservatives say that once outside the EU, the U.K. will be able to cut unnecessary regulation and strike trade deals with the EU as well as a number of other economies.

Earlier this week, U.K. Treasury chief Philip Hammond said that he expects inflation to slow gradually over the coming months, easing pressure on consumers. The government is also looking to secure a post-Brexit transition arrangement with the EU to give businesses the clarity they need to press ahead with investment.

(END) Dow Jones Newswires

January 26, 2018 05:04 ET (10:04 GMT)