The U.K. economy is full of surprises. And some of them can be pretty hard to believe.
Growth in business services and finance, one of the biggest components of gross domestic product, slumped to just 0.1 percent in the first quarter, the Office for National Statistics said Tuesday. That's the lowest since 2010, and down from a massive 1.3 percent growth in the final three months of 2014. That explained a lot of the slowdown in overall growth to just 0.3 percent, lower than what economists were forecasting. But it’s such a strong reversal from the sectors' usual role, of leading the recovery, that some economists aren't willing to buy the latest reading.
"The idea that there's a very sharp stagnation in business services is really very odd," said David Kern, chief economist at the British Chambers of Commerce. "I don't actually believe it."
The report was part of the ONS's first estimate of GDP, which uses less than half the data that ultimately feeds into the final reading three years later. The statistics office revises the figure as new information comes in, and will provide major updates in the next two months.
Kern said employment growth suggests that business services is much stronger than Tuesday's report implies. Andrew Goodwin, an economist at Oxford Economics, agrees.
"We've seen very strong growth in employment, and the services sector in general seems to do well," he said. "We wouldn't be desperately concerned by these numbers."
One of the culprits in the business services slide was financial services, which contracted in January and February. Telecommunications also had two consecutive months of contraction, while the category of public administration and defense snapped a four-month slump by merely stalling in February.
At 30 percent of the economy, business services has been largely leading the U.K. recovery since the recession ended in 2009. And in a few months' time, the ONS may well report its leading role resumed.
"It may well get revised away," said Alan Clarke, an economist at Scotiabank in London. "It's a puzzling one."
To continue reading this article you must be a Bloomberg Professional Service Subscriber.
If you believe that you may have received this message in error please let us know.
- Morgan Stanley Says Stock Slide Was Appetizer for Real Deal
- U.S. Stocks Fall With Treasuries, Dollar Climbs: Markets Wrap
- U.S. Pays Up to Auction $179 Billion of Debt in a Span of Hours
- Florida Teachers’ Pension Fund Invested in Maker of School Massacre Gun
- ‘No Cash’ Signs Everywhere Has Sweden Worried It’s Gone Too Far