London - UK economic growth accelerated in the second quarter as higher consumer spending helped to blunt the impact of a drop in business investment.
Household expenditure rose 0.3 percent quarter on quarter and disposable income increased 1.5 percent, the most in a year, the Office for National Statistics (ONS) said yesterday. Income was boosted by bonus payments being deferred to take advantage of a tax cut.
Gross domestic product (GDP) advanced 0.7 percent in the quarter, matching a previous estimate.
Britain’s economy has shown signs of strengthening this quarter after a recession that has left GDP 3.3 percent below its previous peak. While the recovery is gathering momentum, Bank of England policymakers speaking this week emphasised their commitment to keeping the key interest rate at a record low at least until unemployment drops to 7 percent.
“There are a few disappointments beneath the headlines,” said David Tinsley, the chief UK economist at BNP Paribas. “I don’t think it has a huge bearing on the short-term outlook, but it probably raises some more questions about the sustainability going forward.”
Consumer spending growth in the quarter was revised lower from 0.4 percent in the previous GDP estimate. It still added 0.2 percentage points to GDP growth, the ONS data showed. Compensation of workers surged 3.4 percent, the most since the data series began in 1987. The deferral of some bonuses coincided with Finance Minister George Osborne’s reduction in the top rate of income tax to 45 percent from 50 percent.
Business investment slid 2.7 percent from the first quarter and was down 8.5 percent from a year earlier. The ONS had estimated that investment rose 0.9 percent in the previous GDP report.
Separate data showed the current account deficit narrowed to £13 billion (R206bn) in the second quarter from a revised £21.8bn in the previous three months. The first-quarter figure was a record, based on records going back to 1955.
Government spending rose 0.5 percent in the second quarter after a 0.2 percent drop in the first three months of the year. Exports were up 3 percent and imports increased 2.9 percent. Net trade made no contribution to GDP growth in the quarter.
In the quarter, construction expansion was revised up half a percentage point to 1.9 percent, while manufacturing growth was revised 0.2 percentage points higher to 0.9 percent, putting total production growth at 0.8 percent. All three grew the fastest in three years.
“The prospects for the remainder of this year look better than we’ve seen for a number of years,” said Lee Hopley, the chief economist at manufacturing trade group EEF. “Less positive, however, was the downgrade to business investment. This again highlights the rebalancing challenge for the UK.” – Bloomberg