This article is more than 2 years old

This article is more than 2 years old

Britain’s economy grew at a slower rate than first thought in the final three months of 2017, leaving the UK lagging further behind other major economies as it prepares to leave the EU.

The Office for National Statistics revised down its estimate for UK growth in the fourth quarter to 0.4%, following an earlier estimate of 0.5% and missing economists’ forecasts that the rate would be unchanged.

It said UK production was lower than initially estimated, and said consumers were less willing to spend due to the price rises triggered by the sharp fall in the pound following the Brexit vote.

Q&A What is gross domestic product (GDP)? Show Hide Gross domestic product (GDP) measures the total value of activity in the economy over a given period of time. Put simply, if GDP is up on the previous three months, the economy is growing; if it is down, it is contracting. Two or more consecutive quarters of contraction are considered to be a recession. GDP is the sum of all goods and services produced in the economy, including the service sector, manufacturing, construction, energy, agriculture and government. Several key activities are not counted, such as unpaid work in the home. The ONS uses three measures that should, in theory, add up to the same number. • The value of all goods and services produced – known as the output or production measure.

• The value of the income generated from company profits and wages – known as the income measure.

• The value of goods and services purchased by households, government, business (in terms of investment in machinery and buildings) and from overseas – known as the expenditure measure. Economists are concerned with the real rate of change of GDP, which accounts for how the economy is performing after inflation. Britain's government statistics body, the Office for National Statistics, produces GDP figures on a monthly basis about six weeks after the end of the month. It compares the change in GDP month on month, as well as over a three-month period. The ONS warns that changes on the month can prove volatile, preferring to assess economic performance over a three-month period as the wider period can smooth over irregularities. The most closely watched GDP figures are for the four quarters of the year; for the three months to March, June, September and December. The figures are usually revised in subsequent months as more data from businesses and the government becomes available.

The ONS also calculates the size of the UK economy relative to the number of people living here. GDP per capita shows whether we are actually getting richer or poorer, by stripping out the impact of population changes. Richard Partington

The weaker end to the year weighed on the economy’s performance in 2017 overall, with growth revised down from 1.8% to 1.7% – the weakest in five years. As the global recovery gathers pace, Britain is falling behind other major economies. The German economy grew by 2.2% in 2017, French GDP increased by 1.9%, and the US economy expanded by 2.3%.

“A number of very small revisions to mining, energy generation and services were enough to see a slight downward revision to quarterly growth overall,” said Darren Morgan, a statistician at the ONS.

“Services continued to drive growth at the end of 2017, but with a number of consumer-facing industries slowing, as price rises led to household budgets being squeezed.”

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

In the aftermath of the financial crisis, the UK economy was heavily reliant on consumer spending for growth, but the latest figures signalled a greater reluctance among UK consumers to spend money, with budgets squeezed by falling real pay, as inflation outpaces wage growth.

Household spending grew by just 0.3% in the fourth quarter and by 1.8% in 2017 overall, the slowest rate of annual growth since 2012.

Firms also appeared reluctant to spend, with business investment flat in the final three months of 2017.

The downward revision to growth came a day after the ONS published figures showing a surprise rise in unemployment in the three months to December.



The weaker-than-expected data creates a potential dilemma for the Bank of England, where policymakers signalled earlier this month the economy could be ready for another rise in interest rates as early as May.

“The latest GDP data suggest that the economy remains in a fragile state and does not need to be cooled with another rate rise as soon as May,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.