Consumer spending props up growth


Published: Wednesday 26th November 2014 by The News Editor

Comments (0)

UK growth in the third quarter was propped up by the strongest increase in consumer spending for four years as business investment and the trade position worsened, official figures showed today.

The Office for National Statistics (ONS) confirmed that gross domestic product (GDP) grew by 0.7% in the July-September period, a slow-down from the 0.9% expansion in the second quarter.

It was well ahead of the stuttering eurozone and slumping Japan but behind the US – which has just revised up its latest growth figures.

The data is likely to revive concerns about the recovery’s reliance on households rather than industry as Chancellor George Osborne prepares to deliver his autumn statement next week.

Consumer spending grew by 0.8%, its strongest pace since the second quarter of 2010, with analysts pointing to improved household confidence and signs that a six-year squeeze on real terms pay is starting to ease.

Meanwhile, the dominant services sector – which represents more than three-quarters of output – grew by 0.8% in the quarter, better than previously thought. And separate figures showed it returned on month-on-month growth in September, up 0.5%.

But business investment in the third quarter fell by 0.7%, its first decline since a similar fall in the second quarter of 2013, amid increasing fears about the impact of global economic woes on the UK outlook.

The trade balance deficit grew from £8.9 billion in the second quarter to £11.2 billion as exports continued to drop off at a rate of 0.4%, and imports grew by 1.4%.

Markit chief economist Chris Williamson said: “Further confirmation of the UK’s recent impressive economic performance was provided by official data showing robust growth in the third quarter.

“However, the news was marred by a fall in business investment, which adds to signs that companies have become increasingly concerned about the economic outlook.

“Falling business investment once again leaves the economic upturn in the hands of the consumer.”

Paul Hollingsworth of Capital Economics said: “The second estimate of Q3 GDP indicates that the end of the squeeze on real pay is helping consumers to drive the overall recovery.”

Howard Archer of IHS Global Insight said: “While the overall growth performance still looked healthy in the third quarter, the growth mix on the expenditure side of the economy was somewhat unbalanced and disappointing.”

He said the fall in business investment could be a result of firms “taking a breather” after four previous quarters of growth.

“It may also be a sign that companies are adopting a more cautious approach in the face of increased global growth concerns (particularly weakness in the eurozone) and mounting political uncertainty in the UK as the 2015 general election looms,” He added.

Published: Wednesday 26th November 2014 by The News Editor

Comments (0)

Local business search