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Robust consumer spending again sustains UK growth in fourth quarter
February 25, 2016 / 9:38 AM / 2 years ago

Robust consumer spending again sustains UK growth in fourth quarter

LONDON (Reuters) - Britain’s economy relied again on consumer spending to drive its growth at the end of last year, outweighing a sharp fall in business investment and a drag from trade, official data showed on Thursday.

Customers shop at a Sainsbury's store in London, Britain December 3, 2015. REUTERS/Neil Hall

The figures underlined the lopsidedness of Britain’s economic recovery, which has depended largely on services companies and household demand.

Bank of England policymakers are sensitive to any signs these two pillars of Britain’s growth are wobbling as the global economy weakens and as the country’s June 23 referendum on European Union membership creates uncertainty.

The Office for National Statistics said gross domestic product rose by 0.5 percent in the fourth quarter, unchanged from an initial estimate and as expected by most economists in a Reuters poll.

“Once again, the buoyancy of the services sector has offset the relative sluggishness of the rest of the UK economy,” ONS chief economist Joe Grice said.

For 2015 as a whole, Britain’s economy grew 2.2 percent. The Bank of England expects it to expand at around the same pace this year, although Governor Mark Carney and other policymakers have sounded increasingly cautious about the global economy.

The data showed household spending growth slowed only slightly to 0.7 percent in the fourth quarter, its slowest increase of 2015, but in annual terms was still up 3.1 percent -- matching the third quarter’s eight-year high.

Consumer spending has benefited from near-zero inflation and steady, if unspectacular, wage growth. Consumer confidence figures on Friday will offer clues to whether the turmoil in financial markets and the referendum are starting to take a toll on household morale.

“The recovery’s reliance on consumers is worrying, because growth in households’ real incomes look set to slow this year as the fiscal squeeze intensifies, employment growth fades and inflation revives,” said Samuel Tombs, economist at Pantheon Macroeconomics.

“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 UK exports in European markets.”

British government bonds and sterling -- which hit a seven-year low against the dollar on Wednesday because of worries about a British exit from the EU -- showed little reaction to Thursday’s data.

The ONS data showed business investment fell at the sharpest pace in nearly two years, down 2.1 percent in quarterly terms compared with economists’ forecasts for a 0.9 percent rise, a deline blamed on disposals in the transport equipment sector.

The BoE has said it has seen scant evidence so far that businesses are holding back on their investment plans because of the referendum, the date of which was announced at the weekend.

Net trade also dragged on growth, subtracting 0.4 percentage points from economic growth on the quarter.

Editing by Catherine Evans

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