Households helped limit hit to UK economy as it shrank in Q2

LONDON: Households helped to limit the damage to Britain’s economy as it shrank in the second quarter ahead of Brexit, according to new data that also showed their financial health was less fragile than previously thought. The Office for National Statistics (ONS) confirmed the economy contracted at a quarterly rate of 0.2 percent in the second quarter, a hangover from a stockpiling boom before the original Brexit deadline that was postponed until Oct. 31.

While British industry and investment wilted in the escalating Brexit crisis, household spending increased at a quarterly rate of 0.4 percent, marking the fastest growth in a year. The new ONS data also showed Britain’s households have been net lenders to the economy rather than net borrowers ever since the second quarter of 2017. Previous data had shown households were net borrowers non-stop since late 2016.

The status change reflected people donating less to charity than previously thought, meaning households held more assets, as well as landlords earning more money, ONS said. “A healthier picture of households’ balance sheets gives us some confidence that household spending will continue to underpin growth,” Andrew Wishart, economist at consultancy Capital Economics said. Changes to the measurement of student loans also contributed to change in the status of households to net lenders, although the figures still showed a “significant” deterioration since the 2016 Brexit vote. Lending to British consumers slowed to its weakest rate in more than five years in August, a sign household demand may be softening in the runup to Britain’s departure from the European Union, Bank of England (BoE) figures showed yesterday. Sterling and British government bonds showed little reaction to yesterday’s data.

Monday’s ONS figures showed Britain’s current account deficit in the second quarter narrowed by less than expected, to 25.2 billion pounds ($31.02 billion) from 33.1 billion pounds. At 4.6 percent of gross domestic product, the deficit was larger than any economist had expected in a Reuters poll which had pointed to a deficit of 19.5 billion pounds. “The fact that the current account deficit was still elevated ... in the second quarter is a concern-as an elevated shortfall is a potential source of vulnerability for the UK economy,” economist Howard Archer from the EY ITEM Club consultancy said. — Reuters