U.K. ETFs In Focus As GDP Growth Slows

The Office for National Statistics lowered UK’s GDP growth estimate for Q4 2017 in its second estimate, bringing 2017 GDP growth to a 5-year low. Low spending weighed on GDP growth, as UK prepares to leave the EU with growth lagging major developed economies.

The Forties pipeline closure for most of December also brought UK GDP down as energy production declined.

In the Headlines

GDP grew 0.4% in the October-December quarter, down from the initial estimate of 0.5%. Owing to the revision, GDP growth for 2017 came down to 1.4% compared with the earlier estimate of 1.5%. This made the UK the slowest growing nation in the G7 in 2017.

Household spending grew a mere 0.3% in the fourth quarter and 1.8% in 2017, the slowest annual growth in five years. This was primarily due to increasing price pressure. U.K. consumer price index increased 3% year over year in January, same as the previous month, per the Office for National Statistics (ONS). However, it still remains way above the Bank of England’s 2% target.

Moreover, the unemployment rate increased to 4.4% in the three months to December compared with 4.3% in the previous period. Adding to the agony, average weekly earnings grew 2.5% in the three months to December, unchanged from the reading for the three months to November.

Despite relatively weak fundamentals, Bank of England (BOE) hiked its benchmark interest rate by 25 basis points to 0.5% in November to curb inflation. “Domestic inflationary pressures are beginning to firm, but they are firming from quite a low level. So the task for MPC, as those imported inflationary pressures come off, is to bring inflation back to [the Bank’s 2pc] target in reasonable horizon,” Mark Carney of the Bank of England said, hinting at further rate hikes to curb inflation.

Brexit

In 2017, Britain and the European Union struck a divorce deal,involving talks on trade agreements and an orderly Brexit. Brexit woes have been weighing on UK’s economic fundamentals since the day the bill was passed in 2016, leading to a slump in the pound and weighing on consumer spending.