Consumer spending drove the UK economy to a 12th straight quarter of growth as the global slowdown took its toll on exporters and business investment slumped.
Household consumption rose 0.7% between October and December, helping to counter a second quarter of declining exports and the biggest drop in business investment in almost two years, the Office for National Statistics said yesterday. The economy grew 0.5%, unrevised from an initial estimate, following a 0.4% expansion in the third quarter.
The figures reinforce the picture of an economy being almost entirely driven by domestic demand a time of deepening troubles in the world economy. Net trade knocked 0.4 percentage point off growth in the fourth quarter and 1 point off the third.
There are concerns that momentum could weaken in the run up to the June 23 referendum on whether Britain should stay in the European Union. With polls suggesting the outcome is hard to call, sterling plunged this week and Bank of England Governor Mark Carney indicated officials are prepared to loosen monetary policy if needed.
“The economic recovery is excessively reliant on consumers, who won’t be able to keep spending at their current rate for much longer,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics. “Meanwhile, the chances that investment or exports rebound and offset the consumer slowdown remain slim, given the recent Brexit-related declines in business confidence and the continued uncompetitiveness of UK exports in European markets.”
Sterling was trading at $1.3913 as of 10:07 a.m. London time, down 0.1% on the day. The pound has fallen more than 3% this week.
Exports fell 0.1% in the fourth quarter and imports rose 1.2%. Government spending increased 0.5%.
Business investment dropped 2.1%, on disposals of transport assets, and there were downward revisions to investment in the first and third quarters of 2015. Policy makers have said they are watching business confidence closely in the run-up to the referendum.
A picture of lopsided growth was reflected in gauges of output. While the dominant services industry expanded an unrevised 0.7%, construction and industrial production shrank more than previously estimated. Oil and energy output fell while manufacturing stagnated.
The figures come a day before the US publishes revised estimates for the fourth quarter, with economists predicting annualized growth of 0.4% — the weakest since early 2014 — rather than the initially reported 0.7%. Annualised growth in the UK was 1.9%.
The latest figures also show the compensation of employees, the widest measure of remuneration, rose 0.7% in the fourth quarter. GDP per capita — a measure of living standards — climbed 0.3%.
While the economy as a whole returned to its pre-recession size in 2013, population growth meant that Britain remained poorer on a per capita measure until last year. In 2015, the economy grew 2.2% and GDP per head rose 1.5%.