Buoyant consumer credit offsets slowdown
Tuesday 21 November 1995
and DIANE COYLE
The rate of economic expansion slowed to its lowest level for three years, as a further build-up of stocks aroused fears of further slackening in the months ahead. But a record rise in consumer credit suggested that consumer expenditure could sustain the recovery.
Malcolm Bruce, the Liberal Democrat Treasury spokesman, said: "Britain is now in a growth recession." Margaret Beckett, shadow Trade secretary, said that "the recovery has not been sustained because it has not been investment-led". The Treasury acknowledged the slowdown, but said the fundamentals remained in place for continuing healthy growth.
The economy grew by just 0.4 per cent in the third quarter, the lowest quarterly rate since the fourth quarter of 1992. The slowdown was even more marked in the non-oil economy, which grew at just 0.3 per cent.
Together with revisions, which pushed up the annual growth rate in 1994 from 3.9 to 4.1 per cent, the latest official statistics showed that the annual rate of growth had fallen to 2.1 per cent, well below the 2.75 per cent the Treasury considers sustainable for the rest of the 1990s.
The picture of a stalling recovery came as official statisticians revised down their initial estimates of quarterly growth in services sector output from 0.7 to 0.6 per cent and pencilled in a bigger-than-expected decline in construction output of 1.4 per cent, taking the annual fall to 3.1 per cent. Manufacturing output grew by just 0.2 per cent.
The single most surprising feature of the quarterly snapshot of the economy was that stock-building rose by almost pounds 500m on the already high inventory increase of pounds 945m in the second quarter. Without this further build-up in stocks, the economy would have ground to a halt in the third quarter.
Simon Briscoe, UK economist at Nikko Europe, warned: "It doesn't look as if the anticipated stock correction has taken place, so it looks as if the next months are likely to see further weakening as the excess stocks are run down."
The main factor depressing the economy in the third quarter was a 2.2 per cent fall in fixed investment. Together with a further small deterioration in net exports, this reduced growth by half a per cent compared with the second quarter. However, these depressive forces were almost exactly counter- balanced by a 0.7 per cent rise in consumer spending.
New figures by Income Data Services showed that four-fifths of autumn pay settlements were between 3 and 4 per cent, barely keeping pace with inflation. Against this background, a record increase in consumer credit suggested that consumers are borrowing to finance that expenditure. According to the banks, consumer credit rose by pounds 505m, more than double the September increase.
A spokesman for the British Bankers' Association said there was no evidence that last month's unusual increase was due to distress borrowing.
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