Weak growth figure increases likelihood Bank of England will keep interest rates at 0.5% next month
The pound crashed more than 1 per cent against the dollar on Friday morning after official figures revealed that the UK economy almost ground to a halt in the first quarter.
Analysts had expected a slowdown due to the “Beast from the East” which covered much of the country in snow, causing travel chaos and halting construction work.
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Pound sterling falls to five week low against US dollar
But the worse-than-expected number prompted fears that the economies problems are more deeply rooted than just bad weather, and increased the likelihood that the Bank of England will not raise interest rates next month.
GDP per person, which strips out economic growth resulting from a rise in population, actually fell in the first quarter, the Office for National Statistics reported.
Traders had been pricing in a high likelihood that the BoE’s Monetary Policy Committee would raise rates to 0.75 per cent from 0.5 per cent on 10 May but the latest GDP numbers further bolster the case for keeping rates where they are.
The pound has fallen steadily against the dollar since reaching post-EU referendum high of $1.43 earlier this month. On Monday, it slipped to a five-week low after a series of disappointing economic indicators.
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That came after sharp falls last week sparked by Bank of England Governor Mark Carney's comment that recent data had been “mixed”.
The BoE governor said he didn’t want to be “too focused on the precise timing” of when rates might next rise and that the UK should “prepare for a few interest rate rises over the next few years”.
Chancellor Philip Hammond moved to calm fears about the health of the UK economy on Friday. “Our economy has grown every year since 2010 and is set to keep growing, unemployment is at a 40 year low, and wages are increasing as we build a stronger, fairer economy that works for everyone,” he said.
Liberal Democrat leader Sir Vince Cable said the GDP figures were a “worrying indication” that the negative impacts of Brexit were now becoming clear.
“Brexit is sucking the life out of government, making it impossible to deal with the real challenges facing our country,” he said.
“The people must be offered a final say on the Brexit deal, with the option to remain in the EU. Only then can we begin to fix our underperforming economy.”