UK economy enjoys stability despite North Sea pipeline shutdown
Consensus figures show economists are widely expecting gross domestic product (GDP) to have expanded by 0.4 per cent between October and December - in line with the third quarter - when official figures are released on Friday.
But some experts are warning that the figure could be lower due to a drop in industrial production after the North Sea Forties pipeline was temporarily shuttered for the bulk of December.
It came after a routine inspection found a hairline crack in the pipe just south of Aberdeen last month, prompting emergency repairs that stopped the flow of oil and gas from platforms feeding into the system.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said it was one of the factors likely to have knocked down GDP growth to 0.3 per cent.
“Data up to November suggest that construction output plunged, subtracting about 0.1% from GDP growth. The strong recovery in industrial production, meanwhile, likely was brought to a halt in December by the closure of the Forties oil pipeline in the North Sea.
“Production, therefore, likely increased by just 0.4 per cent in quarter four.
“As a result, steady growth of 0.4 per cent in services output in quarter four - the same as in quarter three - would yield a 0.3 per cent rise in GDP.”
Alan Clarke, head of European fixed income strategy at Scotiabank, is also expecting a 0.3 per cent rise, but said the figure “would be excusable” and that the Bank of England would probably “forgive” the slowdown given the circumstances.
“With that pipeline switched back on, in January we could get a boost,” Mr Clarke added.
It temporarily takes the focus off the UK’s powerhouse services sector, which accounts for around 79 per cent of the economy but is likely to have experienced sluggish growth over the final three months of the year.
The UK is still struggling to bounce back to levels seen in the final quarter of 2016, when GDP rose by 0.6 per cent.
Economists at Investec - who are forecasting a 0.4 per cent rise for the quarter - believe full-year growth for 2017 is likely to come in at a five-year low of 1.8 per cent, compared with 1.9 per cent in 2016.
November employment figures released earlier this week showed that the number of people in work reached a record high of 32.2 million, prompting speculation that the UK economy may have been stronger than expected in the final quarter.
Howard Archer, chief economic adviser to the EY ITEM Club, said: “The buoyancy of the jobs numbers does perhaps point to an economy not quite as soft as some suggest. Quarter four’s GDP data, released this Friday, will reveal all.”
He added: “The hope is that productivity will pick up the slack in supporting growth. With hours worked dropping in the latest data, alongside a rise in GDP, this hope is perhaps looking less faint.”
The International Monetary Fund (IMF) earlier this month slashed the UK’s growth outlook from 1.6% to 1.5% for 2019, the year it quits the European Union.
For 2018, the IMF is forecasting UK growth at 1.5 per cent, with the organisation previously saying that Brexit uncertainty and the inflation squeeze on household spending power would put the breaks on the UK economy.
The Washington DC-based group said firms are likely to continue deferring investment decisions until there is greater clarity on the UK’s future trading relationship with the European Union.