May 28, 2015 / 1:42 PM / 3 years ago

UK first-quarter growth sapped by surge in imports

LONDON - Britain’s economy sucked in imports in the first three months of 2015, and the services sector turned out weaker than first thought, contributing to soft overall economic growth.

The Office for National Statistics said gross domestic product rose by 0.3 percent in the first quarter, unchanged from an initial estimate.

Economists had been widely expecting an upward revision, after the ONS earlier announced that industrial output and construction were stronger than first thought. [ID:nU8N0XW01B]

But services output was revised lower on Thursday, due to weaker output in the transport, storage and communications sector.

The initial GDP reading, published barely a week before Britain’s national election on May 7, marked a sharp slowdown from quarterly growth rates of around 0.6 percent recorded in 2014.

The Bank of England has said it ultimately expects the first-quarter growth rate to be revised up to 0.5 percent once final data is available.

Last week the BoE forecast that Britain’s economy would grow by 2.5 percent this year. GDP expanded by 2.8 percent in 2014, its fastest growth rate since 2006 and a bigger expansion than in any other major advanced economy, as Britain caught up on some of the ground lost during the financial crisis.

The ONS said business investment rose by 1.7 percent in the first three months of the year, the strongest since Q2 2014, beating economists’ forecasts for a 1.0 percent rise, after a decline of 0.9 percent in late 2014.

But trade proved a major drag on the economy, knocking 0.9 percentage points off the quarterly rate of GDP growth, the biggest drag since the third quarter of 2013, due to high imports of oil, machinery and transport equipment.

Sterling rose to its strongest on a trade-weighted basis since August 2008 in March, and has since strengthened further.

Household spending rose by 0.5 percent, softening slightly since the end of 2014.

British consumer confidence surged this month to its highest level in a year as more households expected their finances to improve in the coming 12 months, a survey showed on Thursday.

Polling firm YouGov and economics consultancy Cebr’s consumer confidence index rose to 115.1 in May from 113.6 in April, its highest level since May last year. [ID:nL3N0YI4CM]

(Reporting by David Milliken and Sarah Young)

UK Economics Desk; Tel: +44 20 7542 2774

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