U.K. Growth Weakens in Blow to Cameron in Tight Election BattleScott Hamilton
U.K. economic growth slowed more than economists forecast in the first quarter, dealing a potential blow to Prime Minister David Cameron’s claim that his Conservative Party is best placed to manage the recovery.
The 0.3 percent pace released on Tuesday was just half the rate of the previous three months and marked the weakest reading since the fourth quarter of 2012. Economists had forecast growth of 0.5 percent, according to a Bloomberg News survey.
With the May 7 election just over a week away, the release was latched onto by politicians looking to sway voters with their economic credentials. Polls signal the Conservatives, who formed a coalition with the Liberal Democrats after the 2010 election, and the opposition Labour Party are neck-and-neck, with neither likely to win a majority in Parliament.
Chancellor of the Exchequer George Osborne said the continued growth was “good news” and tried to turn the slowdown to his advantage. In a post on his Twitter feed, he said this is a “critical moment and reminder you can’t take recovery for granted.”
The pound weakened immediately after the data before rebounding, and was up 0.3 percent $1.5286 as of 12.35 p.m. London time. It’s fallen more than 5 percent against the U.S. currency in the past six months.
Since the last election, the economy has grown 8.4 percent, according to the Office for National Statistics. It has been a central part of the election battle, with Cameron citing falling unemployment as evidence that his plan is working.
“With me you keep the jobs, you keep the growth, you keep the security,” he told a campaign event in north London Tuesday. “Please think about the risks to our economy.”
Against that, Labour leader Ed Miliband has said the recovery hasn’t lifted living standards for most people. “While the Tories have spent months patting themselves on the back these figures show they have not fixed the economy for working families,” said Ed Balls, the party’s economy spokesman.
ONS Chief Economist Joe Grice warned against “reading too much into one quarter’s figures.” The data is based on about 44 percent of the information that will ultimately be available.
Morgan Stanley said it’s “reluctant” to view the first quarter as the start of a slowdown and there may be only limited pass through to how Britons plan to vote.
“The economy is still a big issue for voters,” economists including Melanie Baker at Morgan Stanley in London said in a note. “But, in our view, it is perceptions -- inflation perceptions, outlook for personal finances -- that matter more than ‘hard data’ in influencing party preferences.”
The slowdown in the first quarter was led by services, the largest part of the economy. It grew just 0.5 percent, the least since the second quarter of 2013. Within that sector, business services and finance rose 0.1 percent, the smallest increase since 2010.
Production fell 0.1 percent in the January-March period and construction dropped 1.6 percent. From a year earlier, the economy expanded 2.4 percent, the least in more than a year.
Forecasts in the Bloomberg survey ranged from 0.8 percent to 0.3 percent. Only two of 39 respondents, Goldman Sachs Group Inc. and Schroders Plc, correctly predicted the first-quarter number.