UK GDP falls as household income takes another hit -UPDATE

Date: Thursday 28 Jun 2012

The United Kingdom´s gross domestic product (GDP) decreased at a 0.3 per cent pace in the first quarter of 2012, in line with the most recent estimate, according to data just published by the Office for National Statistics (ONS).

The previous quarter´s rate of expansion, however, was revised down slightly, to show a drop of 0.4% quarter-on-quarter, versus the 0.3% seen in the first print. Similarly, and in terms of year-on-year rats of change, economic activity is now thought to have contracted at a pace of 0.2% instead of 0.1%.

Output in the production industries fell by 0.5%, within which manufacturing output fell by 0.3%, while output in the services industries rose by 0.2%. The construction industry´s output, on the other hand, fell by 4.9%.

In expenditure terms, and by percentage variation, the largest increase was seen in government consumption, which rose by 1.9% quarter-on-quarter, along with spending on investment, which also rose by 1.9%.

Worth pointing out however, while government expenditure on consumption made its largest contribution to growth in seven years (+0.7pp of GDP), government investment fell by a third. Thus, in overall terms government spending subtracted -0.3pp from growth, Barclays points out.

Revisions

Final household consumption decreased by 0.1% in volume terms in the latest quarter, after being revised down from an initial estimate of 0.2%.

Net trade is now estimated to have subtracted 0.4pp from quarterly growth, compared with the previous estimate of a 0.1pp subtraction. Exports fell at a clip of 1.7% following a surge of 3.1% in the previous three months.

Investment rose by 1.9% q/q compared with a previous estimate of 3.6%. Offsetting this downward effect, overall investment (ie, including government and dwellings investment) is now estimated to have contributed 0.3pp to Q1 growth as opposed to zero previously.

Inflation eats into household income, but savings still steady

Real household disposable income (RHDI) is estimated to have fallen by 0.9% quarter-on-quarter in both quarter four 2011 and quarter one 2012 (versus a previous estimate of -0.2% for quarter four and a Barclays forecast of -0.7% for quarter one), as the corrosive effects of high inflation were compounded by outright declines in nominal income, Barclays adds.

Weak income growth went hand-in-hand with weak consumer spending, however, and the household saving rate declined only marginally, to 6.4% in quarter one from 6.9% in quarter four. The saving rate has been steady at around 6.5% for the past couple of years.

SoS to BoE?

After analyzing the data economists at Barclays pointed out that, “with uncertainty about the economic outlook still high, and consumer and business confidence commensurately low, there is little positive momentum in private domestic demand. The economy continues to receive a surprising degree of support from government consumption, but with austerity measures in the pipeline this surely cannot last; and the ongoing euro crisis is generating a severe headwind for UK exporters. The economy appears in dire need of a policy boost, and further quantitative easing by the Bank of England next week seems highly likely.”

AB

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