The ONS released the first estimate of GDP growth for the fourth quarter of 2017 on Friday.
- Britain's economy grows 1.5% year-on-year in the fourth quarter of 2017, preliminary ONS estimate shows.
- Growth was expected to be 1.4%.
- On a quarter-by-quarter basis, GDP grows 0.5%, also ahead of forecasts.
- Expansion was driven by the dominant services sector, which accounts for almost 80% of GDP.
LONDON — Britain's economy grew faster than expected in the fourth quarter of 2017, new data from the ONS shows.
GDP grew by 1.5% on a year-to-year basis in the quarter, beating forecasts of 1.4% growth.
On a quarterly basis, growth came in at 0.5%, also ahead of forecasts.
Services, the dominant sector of the UK economy, once again account for the majority of growth over the data period. Services account for roughly 80% of UK output.
"The dominant services sector, driven by business services and finance, increased by 0.6% compared with the previous quarter," the ONS said.
"The boost to the economy at the end of the year came from a range of services including recruitment agencies, letting agents and office management," Darren Morgan, the ONS' head of GDP said in a statement.
"Other services – notably consumer facing sectors – showed much slower growth. Manufacturing also grew strongly but construction again fell."
Here's the ONS' chart of UK GDP over the longer run:
While Brexit has undoubtedly slowed the UK economy, an annualised growth figure of 1.5% for 2017 puts the UK in line with OECD forecasts for growth in fellow G7 members Japan and Italy, both of which are expected to grow at 1.5% in 2017, and close to France, which is expected to grow at 1.8%.
Previous estimates had suggested that UK would be easily the slowest growing G7 economy last year.
The GDP number comes on the same morning that Bank of England Governor Mark Carney said there is scope for a "conscious recoupling" of the UK to global growth rates once there is more clarity on Britain's future trading relationship with Europe.
"Undoubtedly the UK is being given a lift by the strength of global (notably euro zone) demand and comes after BoE Governor Carney implied that the UK's slowdown may be more temporary than previously supposed," Peter Dixon, senior economist at German lender Commerzbank said in an email.
It should be noted that Friday's GDP figures could still be revised higher or lower, and reflect a preliminary sample of all the data the ONS collects about the quarter.
UK GDP has now grown in 20 consecutive quarters. The last time UK GDP shrunk over a quarter was in Q4 of 2012 when the economy readjusted following a huge boost from the 2012 Olympic Games in London.
How will the Bank of England react?
The better than expected GDP number on Friday creates something of a dilemma for the Bank of England, which is expected to increase its base rate of interest at least once in 2018, having hiked for the first time in a decade in November 2017.
Analysts responding to the news largely agree that the beat will bring forward that hike, with David Owen, chief European financial economist saying it will come "most likely in May, followed by November."
Samuel Tombs of Pantheon Macroeconomics has a similar view, saying that "this is an undeniably strong report that increases the chances that the MPC follows up November’s interest rate rise as soon as this summer."
Tombs' forecast is for an August hike, noting that "today’s strong data mean we are pulling forward our forecast for the next interest rate rise to August, from November."
Market reaction
The pound was significantly higher after the announcement, and as of 9.45 a.m. GMT (4.45 a.m. ET), was up more than 1% against the dollar, trading at $1.4266, helped by the continuing weakness of the greenback. Here's the chart: