Britons’ disposable income fell in the fourth quarter, underlining the pressure on consumer spending as the economy stands on the brink of another recession.
Real disposable income declined 0.1 percent from the previous three months, the Office for National Statistics said today in London. Gross domestic product fell 0.3 percent, the same as previously estimated.
The Office for Budget Responsibility cut its growth forecasts last week and Chancellor of the Exchequer George Osborne said it will take longer than previously thought to cut Britain’s debt, prompting Fitch Ratings to move a step closer to stripping the country of its top credit rating. GDP is at risk of contracting again this quarter, marking the third recession in five years. Concern over the economy has weighed on the pound this year.
“The economy currently continues to find it hard to generate even modest sustainable growth, and its task is not being made any easier by the increased pressure on consumers’ purchasing power,” Howard Archer, an economist at IHS Global Insight in London, said before the data was released.
Today’s report confirmed the trade and investment acted as the biggest drag on the economy in the fourth quarter, casting doubt on Prime Minister David Cameron’s claim to be rebalancing the economy away from spending by consumers and the government.
Exports fell 1.6 percent and net trade contributed 0.2 percentage point of the overall decline in GDP, suggesting exporters are seeing little benefit from the pound’s decline.
The current-account deficit narrowed to 14 billion pounds ($21.2 billion) in the fourth quarter from 15.1 billion pounds in the previous three months, the ONS said separately today. While the trade balance widened, Britain swung to a surplus on its income balance.
Business investment fell 0.8 percent in the quarter instead of the 1.2 percent decline previously estimated, wiping 0.1 point from GDP. Consumer spending rose 0.4 percent instead of 0.2 percent.
On the output side, there was a downward revision to industrial production, which fell 2.1 percent, the most since 2009, amid shutdowns of North Sea oil production. Services were unchanged, revised from a drop of 0.1 percent.
The household savings ratio fell to 6.7 percent in the final three months of 2012 from 7.9 percent in the previous quarter. Net disposable income rose 2.1 percent last year, the biggest increase since 2003.
The weak economy is hampering Osborne’s efforts to narrow the budget deficit. In his budget last week, the chancellor conceded borrowing will be more than 50 billion pounds higher than previously estimated over the coming years after the OBR cut its forecasts. The economy will grow 0.6 percent this year, half the pace predicted in December, the fiscal watchdog said.
Britain has recovered only half of the output lost in the 2008- 2009 recession, and the country forfeited its top credit rating at Moody’s Investors Service on Feb. 22. By contrast, output in the U.S. is back above its pre-slump peak and the recovery is gaining pace.
Osborne is relying on the Bank of England to pursue “monetary activism” to aid the economy as his budget cuts, the euro-region crisis and the squeeze on incomes from above-target inflation depress demand.
Governor Mervyn King and two other officials were defeated for a second month in their bid to add to the 375 billion pounds of assets bought as part of quantitative easing since March 2009.
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