Consumer growth surges as exports hit a four-year low

Consumer spending surged at its fastest rate since the boom days of the late Eighties last year while exports fell to a four-year low, according to figures yesterday that highlight the growing divide in the UK economy.

Consumer spending surged at its fastest rate since the boom days of the late Eighties last year while exports fell to a four-year low, according to figures yesterday that highlight the growing divide in the UK economy.

The Government's statisticians said they had underestimated the level of household consumption, which rose 4.5 per cent in 1999, the fastest annual growth since 1989.

The revisions pushed the estimate of GDP growth in the last quarter of 1999 from 2.7 to 2.9 per cent, the Office for National Statistics said. The ONS revised the figures for all four quarters of last year ahead of next month's Budget.

The key change was a revision to growth in the third quarter of last year to 1.0 from 0.8 per cent, making it the fastest growing period for two years. Household expenditure over the same period was revised up sharply, to 4.1 per cent from 3.5 per cent.

In sharp contrast, exports fell 1.6 per cent in Q4 while imports rose 1.8 per cent, making it the worst quarter since mid-1995. Net exports took a full percentage point off GDP and highlighted the impact of sterling.

The output of the production industries rose just 0.3 per cent in the fourth quarter, the weakest performance for nine months. However, the slowdown was mainly due to energy output with manufacturing growing 0.7 per cent.

"The breakdown revealed a renewed divergence between the domestic and export sectors," said Jonathan Loynes, an economist with HSBC. Brendan Baker, of Lombard Street Research, said the pace of the manufacturing recovery was unsustainable while sterling stayed so strong.

The data will increase the dilemma for the Bank of England, whose Monetary Policy Committee has to control the pace of domestic demand while taking account of the pressure on industry.

"The MPC will remain under pressure to get the pound down to relieve pressure on manufacturers," said Mr Baker. "But it is not clear how it will achieve this when rapid growth in domestic demand calls for further monetary tightening."

Hopes of a pause in the rise in interest rates received a boost after David Clementi, the Bank's deputy governor, said the MPC had an opportunity to "wait and see". "This need not damage our prospects of meeting the inflation target and it might improve the chances of continued sustainable growth in output and employment and, perhaps, of a return to a more realistic level," he said.