UK domestic demand lifts economy as net trade has record drag

LONDON (BLOOMBERG) - Domestic demand continued to drive United Kingdom economic growth in the three months through September, with consumer spending rising for a 17th straight quarter.

Updating its gross domestic product data, the Office for National Statistics said on Friday (Nov 27) that household spending rose 0.8 per cent compared with the previous quarter. That, along with a jump in government spending, helped to counter the biggest negative impact from net trade on record. The economy grew 0.5 per cent in the period, unrevised from an initial estimate.

While Bank of England Governor Mark Carney this month warned of risks to the UK from emerging markets, he said domestic demand remained robust. That is partly due to record-low inflation and a pick-up in wage growth, which is supporting confidence among Britons.

Those factors have helped the UK economy to its longest stretch of growth since the financial crisis. Trade, meanwhile, has been acting as a drag as weak global demand and the strength of the pound weighs on exports. The Office for Budget Responsibility raised its 2016 growth forecast this week to 2.4 per cent from 2.3 per cent and left its 2015 projection at 2.4 per cent.

The ONS said that the annual growth in consumer spending in the third quarter was 3.1 per cent. That matched the pace of the previous quarter, which was the most since 2007.

On a quarterly basis, government spending rose 1.3 per cent, the most in more than a year, adding 0.3 percentage point to growth. Business investment was up 2.2 per cent and added another 0.2 percentage point.

Net trade knocked 1.5 percentage points off GDP, the most since records began in 1997. While exports increased 0.9 per cent, that was far outpaced by a 5.5 per cent jump in imports, the biggest since the first quarter of 2006.