Bloomberg News

U.K. Disposable Income Increases as Consumers Drive Recovery (2)

December 20, 2013

A Shopper Looks In a Store Window at Manchester's Arndale Centre

A shopper holds branded bags as he looks inside a retail outlet at the Manchester Arndale shopping centre in Manchester. Consumer spending added 0.2 percentage point to GDP in the second quarter and 0.5 percentage point in the third. Photographer: Paul Thomas/Bloomberg

U.K. disposable income rose for a second quarter in the three months through September and the savings ratio declined, highlighting the dependency of Britain’s recovery on consumer spending.

The amount of money available to households for spending increased 0.4 percent after inflation following a 3 percent surge in the previous quarter, when it was boosted by the timing of bonus payments, the Office for National Statistics said in London today. The proportion of incomes saved declined and separate ONS data showed the current-account deficit reached the most since 1989 as a percentage of gross domestic product.

Data this week showed inflation is easing and the unemployment rate has fallen to a 4 1/2-year low. While the government and Bank of England have raised their growth forecasts, BOE Governor Mark Carney said this week the recovery must be sustained before officials raise interest rates from the current record low.

“The U.K. recovery is dependent on consumer debt and dissaving,” said Philip Rush, an economist at Nomura International Plc in London. “That means imports and a terrible external trade performance. The economy is nowhere near firing on all cylinders.”

U.K. GDP (UKGRABIQ) increased 0.8 percent in the third quarter, the data showed, matching a previous estimate, and the savings ratio slipped to 5.4 percent from 6.2 percent.

‘Goldilocks moment’

“Rising activity and slowing inflation leaves the U.K. in a Goldilocks moment for now, although we remain concerned that much of the upswing remains cyclical and overly dependent on consumer spending,” said Tom Vosa, an economist at NAB Capital in London. “Still, we suspect that both the government and the BOE will remain relieved by recent data. The U.K. economy will be carrying lots of momentum into 2014.”

From a year earlier, the economy grew 1.9 percent in the third quarter, revised up from 1.5 percent. On the quarter, there were upward revisions to services and construction, while manufacturing growth was revised lower.

Today’s report also showed that GDP rose 0.8 percent in the second quarter, higher than the 0.7 percent previously estimated. Consumer spending added 0.2 percentage point to GDP in the second quarter and 0.5 percentage point in the third.

Budget Deficit

Separately, the ONS said the budget deficit widened last month as a result of higher net investment and a swing from surplus to deficit at local authorities. Central government net borrowing narrowed as the economic recovery boosted taxes, while government departments cut spending and welfare costs fell.

The total deficit excluding temporary support for banks was 16.5 billion pounds ($27 billion) compared with 15.6 billion pounds a year earlier. The median forecast of 21 economists in a Bloomberg News survey was 15 billion.

The measure that determines how much the government needs to borrow by selling gilts -- the central government net cash requirement -- was 9.4 billion pounds, the report showed.

The Office for Budget Responsibility earlier this month cut its 2013-14 net borrowing forecast to 111 billion pounds, or 6.8% of GDP, from its March prediction of 120 billion pounds. It sees the budget returning to surplus in 2018-19, meaning government departments and the welfare budget face further cuts if the Tories win the 2015 general election.

‘Extremely Disappointing’

The current-account deficit widened to 20.7 billion pounds in the third quarter from 6.2 billion pounds in the previous three months. As a percentage of GDP, the deficit has reached 5.1 percent, the most since the third quarter of 1989.

“The trade performance remains extremely disappointing,” said Howard Archer, an economist at IHS Global Insight in London. “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.”

The pound stayed 0.2 percent lower against the dollar after the data were published at $1.6333 as of 10:32 a.m. London time.

The ONS also said business investment rose 2 percent in the third quarter from the previous three months, though it was down 5.3 percent from a year earlier. In a separate release, it said its index of services rose 0.1 in October from the previous month.

To contact the reporter on this story: Jennifer Ryan in London at

To contact the editor responsible for this story: Craig Stirling at

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