UK economy expands 0.7 per cent in fourth quarter

Britain’s economic recovery broadened in the last three months of 2013, driven by a pick-up in business investment and trade that will hearten the Bank of England and the government.

Consumer spending and a turnaround in the housing market have been the main drivers behind Britain’s surprisingly rapid upturn, which started last year. But the latest data suggested a more balanced recovery may be building, little more than a year before a general election.

Gross domestic product rose by 0.7 per cent in the fourth quarter, the Office for National Statistics said, unrevised from an earlier estimate and in line with forecasts. That capped off the fastest rate of full-year growth since the financial crisis.

Sterling rose against the dollar to a session high above $1.67 after the data.

Business investment rose 8.5 per cent in the fourth quarter compared with a year earlier, the fastest upturn since the first quarter of 2012. Household spending rose 0.4 per cent on the quarter. Net trade also contributed strongly to growth.

Britain’s Treasury highlighted the growth in business investment, saying it was a sign that the government’s economic plan was working. But a spokesman said more needed to be done and next month’s budget would seek to support investment and exports.

Revisions to the data showed business investment grew for four consecutive quarters for the first time since 2007.

The data took Britain’s full-year growth for 2013 up to 1.8 per cent, from just 0.3 per cent the year before. This is the highest since 2007, although total output is still 1.4 per cent below the pre-financial crisis peak reached in the first three months of 2008 - a weaker situation than in almost all other big advanced economies.

Business surveys have suggested the momentum behind the recovery has largely carried through into the first months of 2014. In the fourth quarter, net trade contributed 0.4 percentage points to growth after being a drag in the third quarter.

Output in Britain’s service sector - which makes up more than three quarters of GDP - rose by 0.8 per cent in the fourth quarter, the same rate of growth as in the third quarter. Industrial output was 0.5 per cent higher, while construction - which accounts for less than 7 per cent of GDP - expanded by 0.2 per cent.

Reuters