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Household spending drives growth

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Household spending drives growth
An increase in household spending helped drive growth in the third quarter


Published: 11:01am, 27th November 2013
Updated: 12:30pm, 28th November 2013

The largest increase in household spending for more than three years helped drive forward economic growth in the third quarter though a steep fall in exports saw the UK's trade deficit widen by more than half, official figures showed today.

The second estimate of gross domestic product (GDP) for the third quarter by the Office for National Statistics (ONS) confirmed that it grew by 0.8%.

But a breakdown of the economic performance is likely to fuel fears that Britain is too reliant on consumer spending while trade struggles. The overall economy remains 2.5% below its pre-recession peak of early 2008.

Household spending rose for an eighth successive quarter, with the 0.8% increase the highest since the second quarter of 2010, as the recovery took hold.

"The growth in household consumption may reflect improving economic conditions over the year-to-date that would be supportive of this growth," the ONS said.

However, exports dropped by 2.4% - the sharpest fall since the second quarter of 2011 - while imports increased by 0.4%.

The net trade deficit increased from £5.5 billion to £8.9 billion over the period, the highest level since the third quarter of 2010.

Separate figures showing a 1.4% increase in business investment - which has been another cause for concern - appeared to provide some cause for optimism, though this was still 6.3% below the level of a year ago.

Jeremy Cook, chief economist at currency brokers World First, said: "Growth in the UK continues to be driven onwards by private consumption, house building and investment. These elements have had to make up for a violent slip in exports."

Wage rises lagging behind inflation meant the consumer growth behind the recovery was at risk, he said.

Howard Archer of IHS Global Insight said: "The 2.4% quarter-on-quarter fall in exports is extremely disappointing and net trade is currently a major drag on overall activity.

"If the recovery is to be sustained at a healthy pace, it really does need a marked, extended pick-up in business investment and for exports to improve."

David Kern, chief economist at the British Chambers of Commerce, said: "Most of the fall in business investment following the recession has not yet been made up and the weaker trade figures highlight the importance of supporting our exporters."

Lee Hopley, chief economist at EEF, the manufacturers' organisation, said there was a "mountain to climb" if business investment is to come close to meeting official forecasts for this year and next.

Samuel Tombs of Capital Economics said signs of increasing investment meant "it seems likely that the recovery will become better balanced soon" and the economy looked set to grow strongly in the fourth quarter.

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