There was welcome news for enthusiastic economists recently after the election regarding projected consumer confidence across Britain, but this is still overshadowed by the UK’s economy growing at its weakest rate since the end of 2012. It would seem the trade deficit has hammered UK growth in its first quarter, so what caused this?
We haven’t seen a weaker growth in the Gross Domestic Product (GDP) since the end of 2012 and economists were particularly disappointed after predicting growth of up to 0.7 per cent. The biggest drag on the economy in the first quarter was down to net trade, with imports rising to 2.3 per cent and exports falling to 0.3 per cent. The net trade performance was disappointing to say the least and reflected an increase in oil, machinery and transport equipment imports, taking 0.9 per cent off growth.
Household spending grew in the first quarter of 2015 by 0.5 per cent, as did investment. Consumer spending was of course lower than economist expectations, so what contributed to the spending increase? It comes down to the sturdy business investment growth which has also given hope that we are looking at a more balanced recovery.
Quarterly business investment grew by 1.7 per cent to £45.7billion in the first few months of 2015, which is the highest level since the second quarter of 2005, where investment grew by £52billion. A Treasury Spokesman had this to say on the recovery prospects. “With business investment reaching its highest level in a decade and the Funding for Lending Scheme driving investment to small and medium-sized enterprises, it is clear that the foundations for a sustainable recovery are being laid.”
As far as output is concerned, there was a significant expansion in manufacturing and a shallower contraction in construction which was offset by unexpectedly slower sector growth. The ONS’s chief economist, Joe Grice, said that this “confirms the picture of somewhat weaker growth in the first quarter than in recent ones. But no single quarter’s figures should be given undue weight.”
With more data becoming available in the foreseeable future, the Bank of England has stated in its February Inflation Report that the first quarter growth will be revised up to 0.5 per cent. A second estimate related to GDP is based on a portion of the data available, believed to be around 83 per cent. There is also expectation from the Bank of England that mature data for the second quarter will show that the UK economy has grown by 0.7 per cent.