UK economy caps challenging year with surprise growth pickup

London - The UK ended a difficult year on a stronger-than-expected note.

Gross domestic product rose 0.5% in the fourth quarter, faster than the 0.4% forecast, figures from the Office for National Statistics on Friday show.

But growth in 2017 as a whole slowed to 1.8%, the weakest pace in five years, as consumers and companies felt the repercussions of the June 2016 vote to the leave the European Union.

One of the fastest-growing major economies in 2016, Britain failed to keep up with Group of Seven peers last year with forecasts suggesting that growth lagged well behind that of Germany and the US.

Growth is expected to slow further this year to 1.4%, as living standards remain under pressure from the sterling-induced upsurge in inflation and companies delay investment until they see what Brexit means for trade.

“Despite a slight uptick in the latest quarter, the underlying picture is of slower and uneven growth across the economy,” said Darren Morgan, head of GDP at the ONS.

Services pickup

The fourth quarter saw the dominant services industry grow by 0.6% - faster than in the third quarter - and manufacturing expand 1.3% as exporters benefited from stronger global growth. Construction shrank for a third consecutive quarter.

The estimate is based on 44% of the data that will ultimately be available.

GDP rose 1.5 from a year earlier, the weakest pace since early 2013. Annualised growth in the fourth quarter was 2%, compared with a forecast 3% in the US.

The figures come as Bank of England (BoE) Governor Mark Carney prepares to speak to the World Economic Forum in Davos. In a BBC interview Friday, he said the Brexit vote had cost the economy tens of billions of pounds but held out the prospect of a pickup toward the end of the year.

The BOE raised interest rates for the first time in a decade in November after assessing that supply constraints mean the economy can now grow by only 1.5% a year without generating inflation.

Bloomberg Economics analysts Dan Hanson and Jamie Murray see rates staying on hold until 2019, though warn that stronger-than-forecast jobs data this week had increased the risk of an increase this year.

Policy makers will announce their next policy decision, as well as unveil new economic projections, on February 8.

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