U.K. Domestic Demand Lifts Economy as Trade Has Record Drag

  • Consumer spending rises 0.8%, 17th consecutive increase
  • Data show net trade subtracted 1.5 percentage points from GDP

Domestic demand continued to drive U.K. economic growth in the three months through September, with consumer spending rising for a 17th straight quarter.

Updating its gross domestic product data, the Office for National Statistics said Friday that household spending rose 0.8 percent compared with the previous quarter. That, along with a jump in government spending, helped to counter the biggest negative impact from net trade on record. The economy grew 0.5 percent in the period, unrevised from an initial estimate.

While Bank of England Governor Mark Carney this month warned of risks to the U.K. from emerging markets, he said domestic demand remained robust. That’s partly due to record-low inflation and a pickup in wage growth which supports confidence.

Those factors have helped the U.K. economy to its longest stretch of growth since the financial crisis. Trade, meanwhile, has been acting as a drag as weak global demand and the strength of the pound weighs on exports. The Office for Budget Responsibility raised its 2016 growth forecast this week to 2.4 percent from 2.3 percent and left its 2015 projection at 2.4 percent.

Temporary Slowdown

“Growth in the U.K. continues to be unbalanced,” said Scott Bowman, an economist at Capital Economics Ltd. in London. “While we think that the slowdown in growth in the third quarter will be temporary -- indeed business surveys have bounced back in October -- any acceleration will probably continue to be led by domestic demand and the service sector.”

The pound remained lower against the dollar on the day after the data were published, trading down 0.4 percent at $1.5035 as of 10:22 a.m. London time.

The ONS said that the annual growth in consumer spending in the third quarter was 3.1 percent. That matched the pace of the previous quarter, which was the most since 2007.

On a quarterly basis, government spending rose 1.3 percent, the most in more than a year, adding 0.3 percentage point to growth. Business investment was up 2.2 percent and added another 0.2 percentage point.

Net trade knocked 1.5 percentage points off GDP, the most since records began in 1997. While exports increased 0.9 percent, that was far outpaced by a 5.5 percent jump in imports, the biggest since the first quarter of 2006.

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