London: Consumer spending is continuing to drive the economic recovery, but there are little signs of improvement in the UK’s large current account deficit, according to official data published on Friday.
Household spending rose 2.2 per cent in the fourth quarter, but this was because people spent their savings, rather than because incomes went up.
The Office for National Statistics also reported a further deterioration in the household saving ratio — the slice of income that is not spent — to 5.1 per cent in 2013, down from 7.3 per cent in 2012.
Samuel Tombs of Capital Economics said the figures “raise concerns that the recovery in consumer spending is unsustainable.
“Nonetheless, a recovery in real earnings and further employment gains should provide more solid foundations for further growth in consumer spending this year.”
As expected, gross domestic product (GDP) growth for the fourth quarter remains unrevised from the last estimate of 0.7 per cent. But there was a small downward revision to the annual figure for 2013 — the UK economy is now estimated to have grown 1.7 per cent, down 0.1 percentage points. Business investment was confirmed at an unrevised 2.4 per cent for the fourth quarter.
There was bad news on the current account deficit which was £22.4 billion in the fourth quarter of last year, equivalent to 5.4 per cent of GDP. The third quarter figures were also revised downwards to £22.8 billion.
ONS chief economist Joe Grice said: “As a percentage of GDP, the current account deficits over recent quarters represent some of the largest on record.
“However, relatively little of this is due to deteriorating net trade. Most of the decline stems from falling income from UK assets overseas, compared with income from foreign-owned assets in the UK.”
Torben Kaaber, CEO of Saxo Capital Markets, said the figures suggested the recovery was on the right track.
“It is true that the current account deficit is still high, and that growth is still very much consumption-led, but this growth trend is a solid foundation upon which to build on with investment inflows, especially when you consider that the UK is in a much better position relative to its peers in Europe,” he said.