Drop in business investment pulls down UK's annual growth

Drop in business investment pulls down UK's annual growth
Malaysia Sun
Friday 24th February, 2012  

  •  Biggest drop in business investment for a year at 5.6% Biggest drop in business investment for a year at 5.6% 
  •  Gross capital formation also fell by 7.6 %
  •  Household consumption, government spending, exports prop up growth

LONDON - The United Kingdoms economy contracted by 0.2 per cent in the fourth quarter of 2011, while gross domestic product (GDP) growth
of 0.7 per cent was lower than expectations, according to the Office for National Statistics (ONS) data released Friday morning.

The consensus expectation was for an increase of 0.2% quarter-on-quarter, while the annual GDP growth expectations was for 0.8% .

The fall in GDP was largely driven by the biggest drop in business investment for a year at 5.6 per cent, while the production sector, which includes manufacturing, declined 1.4% compared with previous estimates of 1.2%.

The construction sector contracted and the energy services sector was flat.

The break up of the data shows that by components, final household consumption grew by 0.5%, government spending by 1.0% and exports by
2.3%. Imports, on the other hand, fell 0.4%, while gross capital formation fell by 7.6%.

Trade data showed that while gross fixed capital formation was down by 2.8%, the business investment also dipped by 5.6%.

When view from year-on-year terms, net trade added 1.2 percentage points to growth, while gross capital formation took away 0.3 percentage points.

But from quarterly data shows that while consumption contributed 0.3 percentage points to the GDP growth together with 0.6 points coming
from external demand and another 0.2 from public spending, but gross capital formation subtracted 1.2 points.

Economists are currently unsure about whether the UK's economy will continue to deteriorate in the first quarter of 2012, after encouraging industry surveys in recent months.

A further contraction in the first quarter of 2012 would see the UK economy officially enter a double-dip recession. However, economic data from the manufacturing and vital services sector in the early weeks of 2012 have been encouraging.

Chris Williamson, chief economist at Markit, said: "Unless the euro zone debt crisis escalates, the coming year is therefore likely to see modest growth. However, there will no doubt be high volatility in the GDP numbers due to factors such as the Olympics and additional bank holiday for the Queen's Jubilee."

Ahead of the budget announcement on March 21, Shadow chancellor Ed Balls said: "For the sake of hard-pressed families, pensioners, young people and businesses, George Osborne needs to listen and use next month's Budget to change course. It's his last chance to make a difference to our economic prospects this year and next."

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