Osborne to miss forecasts as eurozone drags down growth

The UK economy came off the boil late last year but oil prices should rev up the engine again, says National Institute of Economic and Social Research

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The Independent Online

The British economy “came off the boil” in the final quarter of 2014, according to the latest estimate from the National Institute of Economic and Social Research (NIESR) released yesterday.

The think-tank said GDP expanded by 0.6 per cent, down from the 0.7 per cent growth registered in the third quarter. The NIESR noted that the growth would be broadly in line with the average over the past 18 months, but the slowdown adds to the impression of a recovery that  is losing steam.

Over 2014 as a whole, the NIESR estimates that the economy grew by 2.6 per cent. That would be the strongest expansion since 2007 but also well short of the 3 per cent pencilled in by the Office for Budget Responsibility, the Government’s official forecaster, only last month.

Last month there were sizeable downward statistical revisions to growth in 2013, largely attributable to trade performance, which have considerably depressed the annual GDP expansion rates and confounded widespread expectations of 3 per cent plus growth in 2014.

Surveys also point to a slowdown in the final quarter. Recent activity readings from the manufacturing and services sectors, in the much-watched composite purchasing managers’ index from Markit/Cips, indicate the slowest rate of GDP growth since the third quarter of 2013.

Hard data from the Office for National Statistics yesterday added to the impression of declining momentum. Construction output fell 2 per cent in November and industrial production flatlined in the same month. There was, however, slightly better news from manufacturing, where output rose 0.7 per cent in November. The trade deficit also fell to £8.8bn, from £9.6bn the previous month, helped by cheaper oil imports.

Ross Walker at Royal Bank of Scotland cited an “underlying moderation” in the recovery and said a stronger performance in the services sector was not offsetting the weakness in construction and industry.

Rob Wood of Berenberg bank said the economy “came off the boil late last year” but argued that weaker oil prices, lower mortgage rates and the prospect of rising real wages would push growth up in 2015. “Falling oil prices put a huge new stimulus in the pipeline that should rev up the UK economic engine again.”

Wage growth has finally turned positive thanks to an unexpectedly rapid decline in inflation to just 1 per cent in October, its lowest rate since 2002. Figures due next week are expected by analysts to show inflation dipping still further in November, hitting 0.7 per cent.

The latest UK trade figures showed the drag from the struggling eurozone, with exports to the Continent declining by 1.5 per cent  in the three months to November on the same period in the previous year.

There was further evidence yesterday of weakness in the eurozone’s core economy, Germany, with industrial output dipping 0.1 per cent  in November.

In the US, by contrast, there were strong signs of a pick-in growth yesterday, with the number of new jobs created in December rising by 252,000. November’s job-creation figures were also revised up from 321,000 to 345,000, the strongest monthly performance since January 2012.