28th March 2014
UK economic growth estimates for last year have been revised down to 1.7% from a previous forecast of 1.8% writes Philip Scott.
The latest numbers from the Office for National Statistics have confirmed that Britain’s economy expanded by 0.7% in the last three months of 2013, unchanged from its previous prediction.
While this represents a fall in pace from GDP growth of 0.8% in both the third and second quarters, experts say the growth breakdown was more broadly-based and healthier.
The ONS numbers show between October and the end of the year, business investment rose 2.4% quarter-on-quarter and 8.7% year-on-year. In addition, net trade was markedly positive, with export growth revised up appreciably to 2.8% quarter-on-quarter. However consumer spending growth actually slowed appreciably compared to the third quarter but was respectable.
Howard Archer, chief UK and European economist at research group IHS Insight however points out that the current account deficit remained worryingly large at £22.4bn in the fourth quarter of 2013, resulting in a “horrible looking shortfall” of £71.1bn in 2013. In addition, real household disposable income dropped 0.1% quarter-on-quarter in the fourth quarter which limited year-on-year growth to just 0.6%.
Archer says: “Confirmation that GDP expanded 0.7% quarter-on-quarter in the fourth quarter of 2013 with growth becoming more broadly based will do little to change expectations that the Bank of England will start inching interest rates up from the second quarter of 2015.
“We expect the economy to expand by 2.7% in 2014 with quarter-on-quarter growth essentially centred around 0.6-0.7% through the year. We assume, for now at least, that there will not be a significant fall-out for the UK economy from the Ukraine crisis.”
Looking at the UK’s economic engine, Stewart Cowley, manager of Old Mutual Global Strategic Bond Fund says: “If the last economic cycle was frivolous consumerism based on debt these figures show that the new economy is based on frivolous consumerism paid for using savings – if you are lucky enough to have them.
“The run down in household savings coupled with companies spending on investment by running down cash shows that cash, not debt, is king. It puts a question mark over the sustainability of the recovery and explains why Bank of England governor Mark Carney is pushing any thought of an interest rate rise out to 2015.”