Britain sees GDP boost as business spending up

Business spending accounted for 50% of the overall 0.8% GDP growth

Business investment surged at its fastest rate for two years in the first quarter of the year, accounting for half of the economy’s growth, the Office for National Statistics said today.

In an encouraging sign for economic rebalancing, the statistics agency said investment by firms jumped 5% in the first quarter, up from its previous estimate of a 2.7% expansion and the quickest pace seen since early 2012.

“This not only indicates that growth is becoming less centered on consumer spending but could also have positive implications for future productivity growth” said Howard Archer of IHS Global Insight.

Business spending accounted for 50% of the overall 0.8% GDP growth over the period, which was left unchanged from the ONS’s previous estimate. Some economists had expected growth to be revised up by stronger-than-expected construction growth but this was offset by a downward revision to the output from the dominant services sector.

In another tentative sign of rebalancing, the current account deficit in the first quarter shrank to £18.5 billion, down from £23.5 billion in the preceding quarter. The ONS said the improvement was driven by a lower trade deficit and a smaller shortfall in net investment and transfers income.

The growth uplift from business investment spending was cancelled out by firms’ running down the inventories.

Households looks set to remain a strong contributor to growth in the second quarter after consumer confidence hit its highest level in nine years in June. However, according to the ONS the household savings ratio ticked up slightly to 4.9% in the first quarter from 4.8% in the final three months of 2013.