Economic growth misses forecasts, raising concerns over recovery

Growth has fallen short of the Office for Budget Responsibility’s 2014 estimate made only two months ago, official figures showed yesterday.

The economy grew by 0.5 per cent of GDP in the final quarter of last year, according to the Office for National Statistics, taking the annual growth rate for 2014 to 2.6 per cent. That is the fastest full year of growth since 2007 but well below the 3 per cent growth the OBR forecast at the time of the Autumn Statement in early December.

The shortfall is a consequence of substantial downward revisions to earlier growth made by the ONS last month. But the fourth-quarter growth figure is also down from the 0.7 per cent growth registered in the third quarter, a further sign that the UK’s recovery lost momentum towards the end of last year.

The ONS breakdown of output by sector showed the services sector doing all the work in sustaining growth in the quarter, expanding by 0.8 per cent. Construction fell 2 per cent over the three months while manufacturing flatlined. Output from construction and manufacturing are still well below their level before the financial crisis.

Fathom Consulting said the economy would continue to slow owing to the fading of the “debt-fuelled sugar high” produced by the Coalition’s mortgage subsidies. It also predicted that the collapse in oil prices would not give a fillip to growth. “In our view, windfall gains from cheaper energy are more likely to feed into higher saving than [boost] expenditure,” Fathom said in a note to clients.

However, the ONS emphasised that it was premature to say the recovery had peaked. “The dominant services sector remains buoyant while the contraction has taken place in industries like construction, mining and energy supply, which can be erratic,” said Joe Grice, chief economist at the ONS.

Michael Saunders of Citi said growth would strengthen to 3 per cent in 2015: “The economy is likely to continue to grow quite rapidly this year, with the ongoing strength in business investment reinforced by a sharp acceleration in household real income growth as nominal wage gains pick up and inflation falls.”

Data yesterday also showed signs that unsecured consumer borrowing is growing. The latest statistics from the British Bankers Association showed household unsecured borrowing – which includes credit card debt and personal loans – rising at the most rapid rate since 2008.

Unsecured loans increased at annual rate of 3.8 per cent in December according to the BBA. Gross mortgage borrowing in the month was £10bn, 12 per cent lower than in the same month in 2013, suggesting a continuing slowdown in the property market.

The OBR has forecast that the economy will grow by 2.4 per cent in 2015. This month the International Monetary Fund forecast a 2.7 per cent expansion. UK GDP is now 3.4 per cent larger than its peak in 2008, although output per head is less than it was then.