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Why is Economic Growth so Poor

The latest figures released from the Office for National Statistics indicate that the nation’s growth has fallen short of expectations in the first quarter of the year. In fact, there was only 0.1% growth in the first few months of 2018, below the expected 0.3%, and well below the 0.4% growth recorded in the final quarter of 2017.

This does not constitute advice and advice should be sought in all instances before acting on it.

So, what’s behind this mediocre economic performance? Could it be the weather, Brexit or simply that the first quarter historically experiences low growth?

One true cause can’t be pinpointed – it’s more likely that a combination of factors have contributed to poor growth.

Can we blame Brexit?

The ever-present threat of Brexit is still looming over the country. The threat is undoubtedly impacting the economy more and more since the announcement in 2016, especially when you compare the performance to Europe and the US. While the US and the Eurozone have seen growth rates of 2.9% and 2.7% respectively, the UK has only experienced 1.2% year on year growth.

The Brexit vote resulted in the pound plummeting and inflation skyrocketing in 2017, which weakened real income and suppressed household spending, all of which caused the economy to deteriorate. However, if you look at the bigger picture, Brexit has impacted the longer term performance of the economy, and cannot solely be blamed for the extreme downturn in the first quarter of this year.

Beast from the East

Some might laugh at the prospect of a bit of snow affecting the UK economy, but according to some experts, the aptly named Beast from the East this winter definitely has to hold some of the blame.

Winter weather heavily disrupted construction yield, plummeting 3.3% in the first quarter, and forcing many building sites to halt work.

The retail sector was also affected in the first three months of 2018, which had a huge impact on the economy as retail accounts for approximately 20% of GDP. Logic follows that if you can’t actually make it to the shops due to weather, you can’t do any spending!

It’s worth noting that the ONS has cautioned against solely blaming the weather for the impact on both construction and spending figures. We can’t narrow down the influence of the weather to the the first quarter alone as both industries have experienced diminishing returns over a longer period of time.

Managing your finances

Clearly the poor economic growth is down to a number of factors, but many remain optimistic. Both the Bank of England and the Office for Budget Responsibility predict growth of at least 1.5%.

It’s difficult to know how to best manage your finances to benefit most during tough economic times. If you are unsure of how the overall economic growth will affect your finances, one of our financial experts can help put your mind at ease and provide guidance to safeguard your hard-earned money against the whims of the economy.

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