UK growth sluggish as consumer spending keeps economy afloat

Britain’s economy grew by just 0.2 per cent in the final quarter of last year compared to the quarter before, figures released today have confirmed, giving it the third-slowest growth rate out of the G7 countries in 2018.

The economy was boosted by British consumers spending more than they earned for a ninth consecutive quarter, the longest period on record, data from the Office for National Statistics (ONS) showed.

Business investment for the period fell by 0.9 per cent in the final three months of 2018 quarter-on-quarter. This figure has been revised upwards from the drop of 1.4 per cent estimated by the ONS in February.

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Business investment has now fallen for four consecutive quarters for the first time since 2009. The upward revision announced today means business investment fell 0.4 per cent over 2018.

Households borrowed the equivalent of 0.8 per cent of GDP in the fourth quarter of 2018, ONS data showed, meaning they have been net borrowers for the ninth consecutive quarter since 2016. From 2012 to 2016, households earned more than they borrowed.

The ONS data revealed that growth in the latest quarter was driven by the services sector, which grew by 0.5 per cent, with all four sub-sectors of production and construction contributing negatively to GDP.

The 0.2 per cent overall GDP growth figure remained unchanged from the ONS’s February estimate.

The latest estimates showed that the UK was the third-slowest growing advanced economy out of the G7 countries in 2018, ahead of only Japan and Italy, the latter having entered a technical recession in the second half of the year.

The Organisation for Economic Co-operation and Development (OECD) attributed the global slowdown earlier this month to “high policy uncertainty, ongoing trade tensions and a further erosion of business and consumer confidence”.

Head of GDP at the ONS Rob Kent-Smith said: “GDP for the final quarter of last year remained unrevised, with services providing the only source of growth.”

Household spending data, also released today, showed a somewhat more positive picture of growth of 0.3 per cent in quarter four compared with quarter three.

The ONS said household consumption increased by 1.8 per cent in 2018, marking a fall in growth over the last two years. “Views on the general economy over the past 12 months and the economic outlook for the year ahead continue to weigh heavily on consumer confidence,” it said.

“Business investment also continued to decline while households spent more than they received for an unprecedented nine quarters in a row.”

UK economist at Capital Economics Andrew Wishart said: “The more detailed figures on household finances also painted a positive picture. The one per cent quarter-on-quarter increase in real household disposable income was the largest since the second quarter of 2017, illustrating that households are benefiting from solid wage growth and below-target inflation.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the GDP figures showed “modest growth still underpinned by consumers”.

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“The broad contours of the expenditure breakdown haven’t changed, with increases in household and government spending offsetting drags from investment and net trade,” he said.

He said: “Looking ahead, we expect quarter one to be a carbon copy of 2018’s quarter four, with growth in households' spending ticking over despite Brexit uncertainty, but investment and net trade continuing to drag on growth.”