Tags: uk | economy | britain | europe

UK Economy Shrinks 0.3% as Exports, Company Spending Fall

Wednesday, 27 Feb 2013 08:31 AM

 

Share:
  Comment  |
   Contact Us  |
  Print  
|  A   A  
  Copy Shortlink
Britain’s economy shrank in the fourth quarter as exports fell and an uncertain outlook depressed company investment.

Gross domestic product declined 0.3 percent from the three months through September, with net trade knocking 0.1 percentage point from output, the Office for National Statistics said in London. That matched the initial estimate published in January. The ONS revised its full-year data and said the economy grew 0.2 percent in 2012 instead of stagnating.

Britain’s subdued economic outlook prompted Bank of England Governor Mervyn King and two other policy makers to vote for more quantitative easing this month. The struggle to recover from a recession is also undermining the government’s deficit-reduction program and was cited by Moody’s Investors Service last week when it stripped the nation of its top credit rating.

“Net exports were a drag and consequently there remains little sign of a rebalancing within the economy toward business spending and trade,” said James Knightley, an economist at ING Bank NV in London. “We are hopeful of a return to positive GDP growth in the first quarter given the improvement in business surveys, but it is likely to be modest.”

The pound rose against the dollar and was at $1.5145 as of 10:18 a.m. London time, up 0.1 percent from Tuesday.

Production Revision

Compared with a year earlier, GDP rose 0.3 percent in the fourth quarter, revised from zero previously. On the quarterly decline in output, the ONS cited maintenance at the U.K.’s largest North Sea oil field and payback from the London Olympics in the previous quarter. The decline in production in the fourth quarter was revised to 1.9 percent from 1.8 percent. Both production and manufacturing fell the most since the first quarter of 2009.

Exports slumped 1.5 percent in the three months through December, outpacing a 1.2 percent decline in imports, the ONS said. Gross fixed capital formation fell 0.4 percent. Within that, business investment fell 1.2 percent, shaving 0.1 percentage point off GDP. Inventories subtracted 0.3 percentage point.

Services, which make up about three quarters of the economy, were revised to a decline of 0.1 percent from stagnation initially. Construction rose 0.9 percent, up from 0.3 percent initially estimated.

Consumer Weakness

Government spending rose for a second quarter, increasing by 0.6 percent, the ONS said, while consumer spending rose 0.2 percent. The statistics office said that compensation of employees rose 0.1 percent and that “slow growth” in pay is “likely to be restricting households’ spending power.” U.K. inflation was at 2.7 percent in January, above the BOE’s 2 percent target, and the central bank has forecast that it will accelerate in the coming months.

The fourth quarter “was supported by probably unsustainable growth in household and government spending,” said Samuel Tombs, an economist at Capital Economics Ltd. in London. “Given the likely intensification of the squeeze on households’s real pay this year and further austerity, we doubt that spending in these areas will continue to grow.”

Today’s data comes less than a month before Chancellor of the Exchequer George Osborne’s budget. In its downgrade of the U.K. credit rating, Moody’s blamed the “continuing weakness” of the economy and the challenge this poses to Osborne’s fiscal plans.

‘Downside’ Risks

“The risks to the growth outlook remain skewed to the downside,” Moody’s said. “Despite considerable structural economic strengths, the U.K.’s economic growth will remain sluggish over the next few years.”

With the economy struggling to recover from recession, BOE policy makers are discussing a range of options to aid growth, including negative interest rates and measures to boost credit. At the same time, incoming Governor Mark Carney has sparked a debate about the central bank’s inflation-targeting remit.

BOE Deputy Governor Charles Bean said today it may be appropriate to review the regime and that policy makers stand ready to take further measures to boost the recovery if required.

“I think it is sensible to review the framework to assess whether it is fit for purpose or can be materially improved, though the hurdle for change should be high,” Bean said.

© Copyright 2014 Bloomberg News. All rights reserved.

Share:
  Comment  |
   Contact Us  |
  Print  
  Copy Shortlink
Around the Web
Join the Newsmax Community
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
 
Email:
Retype Email:
Country
Zip Code:
 
You May Also Like
Around the Web

Newsmax, Moneynews, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, NewsmaxWorld, NewsmaxHealth, are trademarks of Newsmax Media, Inc.

MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved