Con­sumer spend­ing drives UK growth as in­vest­ment slumps

The Pak Banker - - MARKETS/SPORTS -

Con­sumer spend­ing drove the UK econ­omy to a 12th straight quar­ter of growth as the global slow­down took its toll on ex­porters and busi­ness in­vest­ment slumped. House­hold con­sump­tion rose 0.7 per­cent be­tween Oc­to­ber and De­cem­ber, help­ing to counter a se­cond quar­ter of de­clin­ing ex­ports and the big­gest drop in busi­ness in­vest­ment in al­most two years, the Of­fice for Na­tional Sta­tis­tics said on Thurs­day. The econ­omy grew 0.5 per­cent, un­re­vised from an ini­tial es­ti­mate, fol­low­ing a 0.4 per­cent ex­pan­sion in the third quar­ter.

The fig­ures re­in­force the pic­ture of an econ­omy be­ing al­most en­tirely driven by do­mes­tic de­mand a time of deep­en­ing trou­bles in the world econ­omy. Net trade knocked 0.4 per­cent­age point off growth in the fourth quar­ter and 1 point off the third. There are con­cerns that mo­men­tum could weaken in the run up to the June 23 ref­er­en­dum on whether Bri­tain should stay in the Euro­pean Union. With polls sug­gest­ing the out­come is hard to call, ster­ling plunged this week and Bank of Eng­land Gov­er­nor Mark Car­ney in­di­cated of­fi­cials are pre­pared to loosen mon­e­tary pol­icy if needed.

"The eco­nomic re­cov­ery is ex­ces­sively re­liant on con­sumers, who won't be able to keep spend­ing at their cur­rent rate for much longer," said Sa­muel Tombs, chief U.K. econ­o­mist at Pan­theon Macroe­co­nomics. "Mean­while, the chances that in­vest­ment or ex­ports re­bound and off­set the con­sumer slow­down re­main slim, given the re­cent Brexit-re­lated de­clines in busi­ness con­fi­dence and the con­tin­ued un­com­pet­i­tive­ness of U.K. ex­ports in Euro­pean mar­kets." Ster­ling was trad­ing at $1.3913 as of 10:07 a.m. Lon­don time, down 0.1 per­cent on the day. The pound has fallen more than 3 per­cent this week.

Ex­ports fell 0.1 per­cent in the fourth quar­ter and im­ports rose 1.2 per­cent. Govern­ment spend­ing in­creased 0.5 per­cent.

Busi­ness in­vest­ment dropped 2.1 per­cent, on dis­pos­als of trans­port as­sets, and there were down­ward re­vi­sions to in­vest­ment in the first and third quar­ters of 2015. Pol­icy mak­ers have said they are watch­ing busi­ness con­fi­dence closely in the run-up to the ref­er­en­dum. A pic­ture of lop­sided growth was re­flected in gauges of out­put. While the dom­i­nant ser­vices in­dus­try ex­panded an un­re­vised 0.7 per­cent, con­struc­tion and in­dus­trial pro­duc­tion shrank more than pre­vi­ously es­ti­mated. Oil and en­ergy out­put fell while man­u­fac­tur­ing stag­nated.

The fig­ures come a day be­fore the U.S. pub­lishes re­vised es­ti­mates for the fourth quar­ter, with econ­o­mists pre­dict­ing an­nu­al­ized growth of 0.4 per­cent -- the weak­est since early 2014 -- rather than the ini­tially re­ported 0.7 per­cent. An­nu­al­ized growth in the U.K. was 1.9 per­cent.

The lat­est fig­ures also show the com­pen­sa­tion of em­ploy­ees, the widest mea­sure of re­mu­ner­a­tion, rose 0.7 per­cent in the fourth quar­ter. GDP per capita -- a mea­sure of liv­ing stan­dards -- climbed 0.3 per­cent. While the econ­omy as a whole re­turned to its pre-re­ces­sion size in 2013, pop­u­la­tion growth meant that Bri­tain re­mained poorer on a per capita mea­sure un­til last year. In 2015, the econ­omy grew 2.2 per­cent and GDP per head rose 1.5 per­cent.

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