First quarter figures of 0.2% GDP growth beaten by every other nation in 28-country bloc as weaker pound after the Brexit vote fuels price inflation

The UK economy was the worst performer in the European Union in the opening months of 2017 as the Brexit vote took its toll, according to official statistics that underscore the challenge facing the next British government.



With economic growth of just 0.2% in the first three months of this year, the UK was well behind its European neighbours. Official EU figures released as Britons went to the polls on Thursday showed the growth for the whole of the EU was 0.6% in the first quarter. The eurozone single currency bloc also grew 0.6% in the opening quarter, buoyed by strong domestic demand.

The Eurostat figures showed every nation in the 28-member bloc reported first-quarter GDP figures growing faster than the UK. The strongest expansion was in Romania at 1.7%, followed by Latvia at 1.6% and Slovenia at 1.5%. The closest countries to the UK’s weak pace of growth were France and Greece, with GDP growing 0.4% in both.



However, in year-on-year terms the UK was closer to the EU performance and ahead of the 19-nation eurozone. After a strong second half to 2016, when the economy defied predictions of a post-referendum slump, UK GDP was still 2% bigger in the first quarter of 2017 than a year earlier. The EU’s economy was 2.1% bigger on the year while the eurozone was up 1.9%.

Recent business surveys have suggested the UK economy has picked up some momentum in the second quarter after its slow start to 2017. But with higher inflation weighing on consumer spending, most forecasters expect growth to be lacklustre over 2017 as a whole and even weaker in 2018.



The main pressure is expected to come from higher inflation, stemming largely from the pound’s sharp fall since the Brexit vote last year. That has made the many imported goods to the UK more expensive and been passed on to consumers. Wages meanwhile have failed to keep pace with those price rises and so workers are worse off in real terms and have been cutting back.

Prospects for the 19-nation eurozone, by contrast, have brightened.

Political uncertainty has diminished now France’s presidential election is out the way, unemployment has fallen, business surveys point to solid demand and a continuing recovery in the global economy could boost exports, economists say.



The confirmation that the UK was the worst performer in the EU growth league in the first quarter follows news last week that it was also trailing behind the world’s advanced economies, with Canada registering stellar growth in the first three months of the year.

The outlook for the UK was tough but stronger global prospects should provide some cheer, economists said.

“Brexit has been partly to blame for slower UK growth, as higher prices due to lower sterling and uncertainty hit retail spending and the willingness of firms to invest,” said George Buckley, economist at the financial firm Nomura.

“But it’s not all bad news – this is as much a story about global strength as it is about downside risks to the UK, which should eventually support exports”



The European Central Bank was the latest body to raise its growth forecasts for the eurozone on Thursday after telling financial markets it had no plans to cut interest rates. ECB president Mario Draghi said growth was now expected to come in at 1.9% in 2017, up from the 1.8% forecast made in March. The outlook for 2018 was nudged up to 1.8% growth, from 1.7%.



“We consider that the risks to the growth outlook are now broadly balanced,” said Draghi, dropping a previous assertion that risks were skewed to the downside.

Draghi said the risk of deflation – or persistently falling prices – in the eurozone had dissipated. But at the same time, inflation was not showing much sign of picking up and the ECB toned down its inflation forecasts for this year, 2018 and 2019.

That suggested policymakers would be in no hurry to withdraw the stimulus they have been providing to the eurozone after the global financial crash of 2008-9 and the eurozone debt crisis of 2012. That broad package of measures, includes printing electronic money to buy bonds and record low interest rates. Some rates are below zero, meaning people effectively pay to deposit money.