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Investment and Consumer Spending Lead U.K. to Ninth Quarter of Growth

Consumer spending and business investment helped the U.K. economy to its longest stretch of growth since the financial crisis as trade continued to act as a drag.

Gross domestic product rose 0.3 % in the first quarter, matching an initial estimate, the Office for National Statistics (ONS) said in London on 28th May.

While the economy has expanded for nine straight quarters - the longest sprint since 2008 - there is little sign of the shift away from domestic demand promised by David Cameron 5 years ago. The prime minister has pledged to use his election victory this month to boost productivity.

Consumer spending rose 0.5 % and investment grew 1.7 %. Exports fell 0.3 % and imports rose 2.3 %. As a result, net trade knocked 0.9 % points off growth, the most since the third quarter of 2013. Government spending climbed 0.6 %.

The ONS cut its initial estimate of services growth to 0.4 % from 0.5 %, due to computer programming and consultancy work. That offset upward revisions to construction and industrial production.

Consumer spending is being underpinned by falling prices and rising wages. The increase in business investment followed a contraction at the end of last year. GDP expanded an unrevised 2.4 % from a year earlier.

Separately on Thursday, the Bank of England said lending to small and medium-sized companies under its Funding for Lending Scheme rose 0.6 billion pounds in the first quarter after declining in the last 3 months of 2014. The BOE also said credit conditions generally have improved for smaller firms.

A key challenge for Cameron’s government is to increase productivity, as output per our remains below its pre-crisis levels. The Bank of England expects first-quarter growth to be revised up and slack in the economy to be erased within a year, leading economists to predict officials will raise the benchmark rate from a record-low 0.5 % early next year.

“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, the U.K. Treasury said in a statement on Thursday.

Thus, GDP rise and continuous economic growth in U.K. have fostered consumer spending and business investments. Along with credit conditions improvement for small companies it creates beneficial situation for business development in Great Britain.

 

 

by Anna Maximova, PhD in economics

(Adopted from Bloomberg business news)