Trade Leads U.K. Economy to Growth as Recovery Broadens
Trade, investment and consumer spending led the U.K. economy to a fourth straight quarter of growth at the end of the year, suggesting the rebalancing sought by Chancellor of the Exchequer George Osborne is under way.
Gross domestic product rose 0.7 percent in the fourth quarter from the previous three months, the same as previously estimated, the Office for National Statistics said today in London. From a year earlier, the economy expanded 2.7 percent, the most in almost six years, and there was an annual 8.5 percent increase in business investment.
The largest contribution came from net trade, handing a boost to Osborne who warned this month that Britain needs to export and invest more to cement the recovery. Bank of England Governor Mark Carney plans to keep the benchmark interest rate at a record low until the economy uses up more of its spare capacity, and policy makers Spencer Dale and David Miles said separately today that rate increases aren’t imminent.
“This provides some hope that the recovery is gaining breadth even if, as we expect, overall growth slows during the course of this year,” said George Buckley, an economist at Deutsche Bank AG in London. “Note net exports were positive, but with the pound up and Europe still fragile its persistence may be challenged.”
In 2013, the economy grew 1.8 percent, the fastest since 2007, the ONS said. Almost all of the increase -- 1.5 percentage points -- came from consumer spending. The economy was previously estimated to have expanded by 1.9 percent last year. GDP in the fourth quarter was 1.4 percent below its pre-recession peak in the first quarter of 2008.
Consumer spending rose 0.4 percent in the quarter from the previous three months, while government spending gained 0.3 percent. Exports rose 0.4 and imports fell 0.9 percent. Business investment climbed 2.4 percent and revisions mean it fell 1.2 percent in 2013 instead of the 5.5 percent previously estimated.
Net trade added 0.4 percentage point to growth in the fourth quarter. Household spending added 0.3 percentage point and business investment contributed 0.2.
Prime Minister David Cameron told lawmakers in Parliament in London today that the growth in exports and investment in the period was “hugely welcome.”
With the economy recovering, BOE Monetary Policy Committee members have been insisting they won’t rush to raise interest rates. Miles said on BBC television that “sometime next year” may be the right time for tighter policy, adding that when rates do go up, it will be at a gradual pace. Those comments were echoed by Dale, the BOE’s chief economist, on BBC Radio Ulster.
The strength of the U.K. recovery has boosted the pound, which has risen about 6.5 percent against a basket of nine developed-market peers in the past six months. The pound was little changed at $1.6682 as of 12:50 p.m. London time.
Howard Archer, an economist at IHS Global Insight in London, said the data “will do little to change expectations” for a rate increase in the second quarter of 2015.’’
Policy makers “have been out in full force in recent days, essentially delivering the message that the BOE has no intention to raise interest rates in the near term,” he said. The MPC “clearly wants to nurture recovery and not to risk choking it off by raising interest rates too early or too fast.”
An expanding economy has helped to lower unemployment toward the 7 percent threshold that Carney set under forward guidance as a point to consider interest-rate increases. The BOE refined the policy this month, broadening the range of indicators it will look at when setting policy.
The European Union forecast yesterday that Britain’s economy will grow 2.5 percent this year. That compares with projections for Germany and France of 1.8 percent and 1 percent. It sees euro-area GDP rising 1.2 percent, which would be its first full-year expansion in three years.
The fourth-quarter U.K. data showed that while industrial production growth was revised lower to 0.5 percent, construction grew 0.2 percent. It was previously estimated to have contracted by 0.3 percent. Services, the largest part of the economy, expanded an unrevised 0.8 percent.
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