On the face of it, news that the UK economy grew more strongly than expected during the final three months of the year is good news.
The growth of 0.5% notched up in October, November and December was not only better than the 0.4% achieved during the previous quarter, it was also better than the 0.4% that economists had been expecting.
It confirms the UK economy picked up momentum throughout 2017 and made this the best quarter since the final three months of 2016.
Accordingly, the pound has been in fine fettle on the foreign exchange markets, putting on more than three-quarters of a percentage point against the floundering US dollar – which has been floored this week by comments from Steven Mnuchin, the US Treasury Secretary, interpreted by many as an attempt to talk down the greenback.
However, people should not get carried away with this.
Quarterly growth of 0.5% confirms the UK economy grew by 1.8% during 2017 as a whole – down from the 1.9% achieved in 2016 and making it the weakest year of growth since 2012.
That comparison is significant since 2012 was the year in which the eurozone debt crisis was at its most intense and in which there were, before the glorious London Olympics, fears that the UK was about to suffer a “double dip” recession.
:: UK economy grew 0.5% in fourth quarter
Yes, the out-turn for 2017 is significantly better than was predicted in the immediate aftermath of the vote to leave the EU, after which the Bank of England was forecasting growth of just 0.8% and the Office for Budget Responsibility 1.4%.
Frankly, though, the economy should have been growing more strongly.
It looks very much as if 2017 will have been the best year for the global economy since the financial crisis – with the United States, the eurozone and most of Asia, including previously moribund Japan, enjoying synchronised growth.
For a big, open, trading economy like the UK, that should be sparking much stronger growth than just 1.8%.
This out-turn will, once other countries begin reporting their numbers, probably be one of the weakest performances in the G20 group of leading world economies.
As the Office for National Statistics observes: “Despite surpassing these [post-referendum] expectations, 2017 growth in the UK economy was still below its five year average growth rate, primarily reflecting a slowdown in services growth, which has gradually declined since 2014.
“The annual growth contribution of the services industry has fallen from 2.7 percentage points in 2014 to 1.3 percentage points in 2017, with the industry growing by only 1.6% in 2017 – its weakest growth rate since 2011.”
That is very concerning given that, despite numerous attempts to rebalance the UK economy, the services sector is still the main motor of growth.
Image: Parts of the services sector had a tough time
And, within that, the strongest sub-sector is business services and finance. So much for Britain becoming less dependent on the City.
Ironically, with the City – one of the few industries in which the UK remains a world leader – still desperate for a good Brexit deal, a lot of the growth it experienced towards the end of the year was due to Brexit.
The ONS speculates business was generated by foreign buyers seeking advice on buying British assets, which have become more attractive due to the fall in the pound, along with EU clients seeking advice on setting up operations in the UK to maintain market access after Britain leaves the EU.
Elsewhere in the services sector, there was no contribution to growth from distribution, hotels and restaurants, which experienced its worst growth since the final three months of 2010.
This confirms the impression created by recent consumer spending surveys that household finances are under pressure and that it would be unwise to expect any uptick in activity in the near future from Britons splashing out on the high street.
Image: The construction sector is struggling
The most cheering element in the numbers concerns production.
The 0.6% growth it enjoyed during the final three months of the year took the total for 2017 as a whole to 2% – the best showing since 2010.
This was predominantly down to strength in manufacturing.
Given that the UK motor industry has been under a cloud during recent months, this is very encouraging, underlining that there is much more to UK manufacturing than just car production.
Manufacturing output, as the ONS notes, rose in November last year for the seventh consecutive month – making it the best run for two decades.
Metal products manufacturing appears to be doing particularly well.
The figures for production would have been better still were it not for the closure for emergency repairs of the Forties oil pipeline for several weeks in December.
Construction, though, is struggling.
Output fell in the sector during the final three months of the year to complete three consecutive quarters of contraction – the worst run since 2012.
Housebuilding is doing well, but civil engineering projects and construction of commercial property remains becalmed, which is undoubtedly a reflection of a lack of confidence among big players in the sector.
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So, while the out-turn for the final three months of 2017 was better than expected, cautious spending by households and businesses means the UK economy is still growing at its slowest pace for five years.
At a time when the global economy is motoring, it ought to be doing better.