U.K. Economy Grows 0.3% on Inventories, Consumer Spending

U.K. Economy Grows 0.3% on Inventory Buildup, Consumer Spending
Today’s report showed that the increase in consumer spending in the three months through March added 0.1 percentage point to GDP. Photographer: Jason Alden/Bloomberg

Britain’s economy resumed growth in the first quarter as companies built up stocks and consumer spending increased, offsetting a drop in exports.

Gross domestic product rose 0.3 percent in the period, matching an estimate published on April 25, the Office for National Statistics said today in London. Inventories increased by 2.5 billion pounds ($3.8 billion) in the quarter, adding 0.4 percentage point to GDP. Consumer spending rose 0.1 percent, while exports and business investment fell.

The economy’s return to growth, along with a strengthening of some surveys, prompted Bank of England Governor Mervyn King to say this month that a recovery is now “in sight.” Still, retail sales dropped in April, and the International Monetary Fund said yesterday the economy remains “a long way from a strong and sustainable recovery.”

“The breakdown of the data is rather disappointing and not that supportive to hopes that the economy is establishing a firmer footing,” Howard Archer, an economist at IHS Global Insight, said in a research note. “The Bank of England will sooner or later undertake more stimulative action to help the economy.”

The growth in consumer spending in the three months through March added 0.1 percentage point to GDP. Still, it was the weakest since the third quarter of 2011, when it dropped 0.1 percent.

Export Weakness

Exports declined 0.8 percent, outpacing a 0.5 percent drop in imports, and net trade subtracted 0.1 percentage point from GDP, the statistics office said. Government spending was unchanged, while gross fixed capital formation fell 0.8 percent. Business investment fell 0.4 percent from the previous quarter and increased 0.7 percent from a year earlier.

Today’s report also showed that production and services were unrevised from the initial estimate published last month. Construction fell 2.4 percent, less than the previously reported 2.5 percent.

In a separate report, the statistics office said its index of services increased 0.6 percent in the first quarter from the previous three months. In March, services grew 0.2 percent. The ONS said there was “little evidence” that cold weather during the month had a significant effect on service industries.

The median forecast of 33 economists in a Bloomberg News survey was for a 0.3 percent increase in GDP in the first quarter. From a year earlier, GDP increased 0.6 percent.

The pound rose against the dollar and traded at $1.5078 as of 11:06 a.m. London time, up 0.2 percent from yesterday.

IMF Outlook

The International Monetary Fund said yesterday that Britain should stay focused on policies to foster economic growth and keep monetary policy loose.

The BOE said this month that the main risks to the U.K. “continue to emanate from abroad.” In China today, a report showed that manufacturing shrank in May for the first time in seven months, adding to signs that growth is losing steam. Euro-area manufacturing also contracted this month.

The 17-nation euro-region economy shrank 0.2 percent in the January-March period, extending its recession to a sixth quarter. The U.S. economy grew at a 2.5 percent annualized rate in the first quarter, less than economists forecast, according to preliminary data on April 26. The Commerce Department will publish its second estimate on May 30.

The BOE kept its bond-purchase program unchanged at 375 billion pounds this month and its benchmark interest rate at a record low of 0.5 percent. Minutes of the May 8-9 meeting released yesterday showed a majority of officials cautioned against the danger of stoking inflation expectations. King, who will retire at the end of next month, was in the minority pushing for more stimulus.

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