Business spending fell at sharpest pace for two years in final quarter, compounding anxiety about unstable recovery
The UK economy grew by a solid 0.5% in the final quarter of 2015, official figures have confirmed, but news of a surprise drop in business spending fanned fears of a slowdown in the months ahead.
Figures released by the Office for National Statistics on Thursday left estimates for GDP growth unrevised. But fresh details on what was driving the economy underscored the precarious nature of the recovery and raised questions about whether its pace is sustainable.
Consumers were again left to do the heavy lifting in the final three months of 2015 as exports struggled, manufacturing stagnated and business investment fell at the sharpest pace for almost two years.
“The data paints a picture of an unbalanced economy that is once again reliant on consumer spending to drive growth, as business shows increased signs of risk aversion,” said Chris Williamson, the chief economist at Markit, which publishes surveys on the state of UK businesses.
“Growth is being supported by firms increasing the wages paid to workers, alongside low inflation, which is clearly good for household incomes in the short term,” Williamson said. “But for a sustainable recovery, which involves improvements in productivity and profits, we also need to see business investment revive – something that will only happen when business confidence lifts higher again.”
The ONS said the economy grew 2.2% overall between 2014 and 2015. That figure was also unchanged from an estimate published in January.
Growth in UK GDP
The 0.5% increase between October and December 2015 followed growth of 0.4% in the third quarter, but marked a slowdown from a rise of 0.6% in the second quarter.
Economists have warned that growth could soften because of a tough global economic outlook, as well as domestic factors, notably June’s EU referendum. There are worries that businesses and consumers will cut back on spending before the vote.
The ONS figures show that growth in household spending slowed to 0.7% during the fourth quarter from 0.8% in the previous quarter. Business investment fell 2.1%, compared with forecasts for a 0.9% drop in a Reuters poll of economists. Net trade was a drag on growth in the fourth quarter and, confirming previous estimates, the ONS said manufacturing was flat.
Tombs added: “The recovery’s reliance on consumers is worrying, because growth in households’ real incomes looks set to slow this year as the fiscal squeeze intensifies, employment growth fades and inflation revives.
“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.”
The UK economy has been growing for 12 consecutive quarters after a small dip at the end of 2012. The UK is also among the fastest-growing advanced economies. The eurozone economy increased by 0.3% in the final quarter of 2015; within the bloc, Germany’s GDP grew 0.3% and France’s expanded 0.2%, the ONS said. The US economy, the world’s biggest, grew 0.2% in the same period.
Reacting to the latest UK figures, a Treasury spokesman said: “These figures confirm that Britain continued to see steady growth at the end of last year. But following recent downgrades to the global economic outlook, it’s vital that we don’t stop working through our plan that’s building resilience and providing an anchor of stability in uncertain times.”
GDP per head slowly recovering
Figures on GDP per head, which is seen by some economists as a better reflection of economic wellbeing than overall GDP, show that it rose 0.3% in the final quarter of 2015 and was still only 0.7% above its pre-downturn peak. GDP is 6.7% above its pre-downturn peak.
Article: The Guardian
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