British consumers drove the rebound in UK economic growth in the second quarter, with households extending their borrowing spree or running down savings to finance spending.
The Office for National Statistics (ONS) said households had been net borrowers for the seventh consecutive quarter, with a household savings ratio of 3.9 per cent slightly higher than in the previous quarter, but still low by historical standards.
Household spending grew by 0.4 per cent between the first and second quarters, the ONS said, while businesses held back as uncertainty swirled ahead of the announcement of a Brexit deal. Business investment dropped for the second straight quarter, declining 0.7 per cent in the second quarter, the data showed.
“Investment and exports [are] showing the strain from Brexit”, Samuel Tombs, chief UK economist at Pantheon Macroeconomics said.
The ONS left its estimate of quarter on quarter growth unchanged at 0.4 per cent for the three months to June, but it cut its estimate for first-quarter growth from 0.2 per cent to 0.1 per cent, saying that construction output had fallen even more than previously thought during the so-called Beast from the East period of freezing weather.
Services and construction picked up slightly, but manufacturing output fell for the second quarter in a row. The recent decline was largely due to a sharp fall in exports of machinery and cars.
“The national accounts confirm that GDP growth merely matched its trend rate in Q2, despite the weather-related boost to growth in output in the construction and retail sectors,” Mr Tombs added. While the rise in households’ real spending was supported by a pick-up in income growth, that was unlikely to accelerate further over the coming quarters, he said.
“With consumers’ finances still under pressure and both investment and exports showing the strain from Brexit, it remains unlikely that the economy will be strong enough for the MPC to seriously consider raising the bank rate again before the March 2019 deadline for Brexit.”
– Copyright The Financial Times Limited 2018
