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NIESR: UK quarterly economic growth slips to 0.4 percent

Xinhua, February 11, 2016 Adjust font size:

The rate of growth in the UK economy slipped to 0.4 percent over the three months to the end of January, a fall of 0.1 percent over the preceding three-month period, according to a forecast released this afternoon, Wednesday, by the National Institute of Economic and Social Research (NIESR).

The forecast released by NIESR, a London-based economic think-tank, estimated that monthly GDP grew by 0.4 per cent in the three months ending in January 2016 after growth of 0.5 per cent in the three months ending in December 2015.

James Warren, research fellow at NIESR, said that the softening of growth in the three months to January was primarily driven by weakness in the production sector at the end of last year.

He added: "Despite our estimates indicating a subdued start to 2016, we do expect the economy to grow by 2.3 per cent this year, primarily driven by consumer spending. However, negative contributions from net trade are expected to weigh heavily on growth. There exist a number of downside risks that have the potential to exacerbate this, should they materialise."

Simon Kirby, senior research fellow at NIESR, told Xinhua that domestically those risks include a failure of productivity picking up; the potential for a correction in house prices from the "extremely high levels of unaffordability"; and uncertainties over the UK's referendum on continued membership of the European Union (EU).

Kirby said: "It is not the specifics of a referendum but the reality of the fact that if there was a vote for exit there would be at least a two-year period of negotiations about the UK's relationship with the EU and that introduces a significant amount of uncertainty into the economy, which is negative."

In addition, the UK's open economy is open to global uncertainty, and Kirby said that the euro-area problems were not yet resolved and that there was deterioration in the situation for emerging market economies.

"Brazil and Russia are clear signs of weakness, and particularly for the UK it is the financial channel rather than the trade channel that is at particular risk," said Kirby.

The tightening of interest rates by the U.S. Federal Reserve had introduced the potential for balance sheet stress for some nations with exposure to dollar borrowing.

Kirby also pointed to low oil prices as a potential source of problems for oil exporting countries which could struggle to meet their financial obligations.

NIESR's latest quarterly forecast, issued at the beginning of this month, projects GDP growth of 2.3 per cent per annum in 2016 and 2.7 per cent in 2017. Endit