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Stronger household spending and investment drive UK first-quarter growth
May 22, 2014 / 8:35 AM / 4 years ago

Stronger household spending and investment drive UK first-quarter growth

LONDON (Reuters) - Britain’s households spent more and companies increased investment at the fastest pace in a year, extending the country’s strong economic growth into the first three months of 2014, official data showed on Thursday.

Tomas Davter, 5, of Bushey looks at a toy display as he shops with his mother and sister at a Tesco Extra supermarket in Watford, north of London August 8, 2013. REUTERS/Suzanne Plunkett

The figures offer some signs that Britain’s rapid growth is slowly getting on the more sustainable footing that the Bank of England wants to see before it raises interest rates, though consumer demand remains by far the largest driver of growth.

As initially estimated last month, gross domestic product between January and March grew by 0.8 percent from the last three months of 2013, the Office for National Statistics said.

In year-on-year terms, growth was 3.1 percent, also unchanged from the ONS’s preliminary estimate and the quickest pace since the fourth quarter of 2007.

“It looks like the consumer spending momentum is still there and is picking up, so we can take heart that the recovery is in train,” said Victoria Clarke, an economist with bank Investec.

The business investment growth showed that companies were also confident about the recovery, she said.

But the pound, which has strengthened on rising expectations of an early interest rate hike by the BoE, fell after other data showed a bigger-than-expected fiscal deficit. Government bond and share prices were little changed. Britain’s economy remains 0.6 percent smaller than its peak in early 2008, but is likely to surpass that level in the current quarter and the BoE forecasts growth in 2014 will reach 3.4 percent, its fastest pace since 2007.

However, the central bank wants to ensure growth is on a firmer footing before it raises interest rates from their record low of 0.5 percent - something economists expect in around a year - and Thursday’s data offered some evidence of rebalancing.

Business investment grew 2.7 percent in the first quarter from the previous three-month period, the fastest rate of growth since the first quarter of 2013, adding 0.2 percent to GDP.

But net trade failed to boost growth, after adding 1.0 percent to GDP in the final three months of 2013.

People pass electronic information boards at the London Stock Exchange in the City of London October 11, 2013. REUTERS/Stefan Wermuth

Instead, a 0.8 percent rise in household consumption, double the pace of the previous quarter, provided most of the 0.8 percent increase in GDP.

“That increase has been largely funded by rising employment, rather than by consumers saving less. So the sources of growth seem sustainable and we continue to expect the recovery to broadly maintain its current pace,” Samuel Tombs, an economist at Capital Economics, said.

SERVICES STRENGTHEN

Services output rose by 0.9 percent on the quarter, its strongest rate of growth since the third quarter of 2011. Industrial output was up 0.7 percent and construction grew by 0.6 percent.

The headline GDP numbers confirmed that Britain, until last year a laggard among the world’s affluent countries, now has one of the fastest-growing economies with an annualised growth rate of over 3 percent.

The figures will buoy finance minister George Osborne as voting starts for local and European Parliament elections on Thursday, although separate public finances data showed higher-than-expected public borrowing in April.

Excluding one-off payments related to Royal Mail’s pension plan and cash transfers from the Bank of England, public sector net borrowing totalled 11.5 billion pounds, up nearly 2 percent from April last year.

A Treasury spokesman said the data underscored the need for the government to press on with its plan to eradicate Britain’s budget deficit.

April was the first month of the 2014/15 financial year, during which Osborne aims to lower borrowing to 5.5 percent of GDP.

Revised ONS figures for the 2013/14 tax year showed borrowing totalled 107.4 billion pounds or 6.59 percent of GDP, down marginally from an original estimate of 107.688 billion pounds or 6.61 percent of GDP.

Editing by Mark Heinrich

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