The UK’s economic recovery remains highly unbalanced and business investment fell at its fastest rate in almost two years at the end of 2015, the latest GDP figures from the Office for National Statistics have shown.
Growth in the final quarter of last year was confirmed by the ONS’s second estimate at 0.5 per cent. Consumption by households was responsible for 80 per cent of the growth in the three months, with the rest accounted for by government spending and firms stock building.
Business investment declined by 2.1 per cent in the final three months of the year, the chunkiest quarterly fall since early 2014, confounding City expectations of a 0.9 per cent rise. Some put the disappointing figure down to uncertainty over the EU referendum. Trade was also a net drag on growth, with exports falling slightly over the quarter and imports rising.
“The economic recovery is excessively reliant on consumers, who won’t be able to keep spending at their current rate for much longer,” said Samuel Tombs at Pantheon Macroeconomics, who warned of an impending squeeze on incomes due to government cuts and a slowdown in employment growth. “The chances that investment or exports rebound and offset the consumer slowdown remain slim,” he added.
“In the near term, a healthy environment for consumers – in the form of low inflation, low unemployment and cheap credit – but a weaker global outlook suggest that the economy’s domestic vs external weakness split is set to continue,” Martin Beck at the EY Item Club, the economic forecasting firm, said.
Sam Hill of RBC Capital Markets said it was not clear that fears over Britain leaving the EU drove the fall in business investment, pointing out that the decline was concentrated in transport equipment rather than being broad-based. But he agreed that “Brexit-related uncertainty” would probably be a further drag on investment between now and June’s referendum.
Kallum Pickering of Berenberg bank agreed: “We anticipate that businesses will likely pause on planned investments, and consumers may begin to hang off on some discretionary spending, until the outcome of the vote is clear.”
Full-year GDP growth in 2015 came in at 2.2 per cent, down from the 2.8 per cent expansion in 2014. As in the final quarter, most of that growth came from consumption. There was a 0.5 percentage point contribution from business investment over the 12 months while net trade knocked off a similar amount.
There had been suggestions of weakness in manufacturing and construction after the ONS’s first estimate of fouth-quarter GDP last month. But Joe Grice, the ONS chief economist, said: “Once again the buoyancy of the services sector has offset the relative sluggishness of the rest of the economy”.
GDP per head in 2015 rose by 1.5 per cent, reflecting strong population growth. While overall output is up by 6.7 per cent since the onset of the recession in early 2008, GDP per head is just 0.7 per cent higher.
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