UK economy ‘recovers from consumption’

A slight apparent weakening of the UK’s economic recovery may in fact be a good thing, according to the BBC’s economics editor, Robert Peston. In the last quarter, ending in September, UK growth dropped slightly from 3.2% to 3% on an annualised basis, and in particular Mr Peston singles out the hospitality and distribution sectorRead More

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A slight apparent weakening of the UK’s economic recovery may in fact be a good thing, according to the BBC’s economics editor, Robert Peston.

In the last quarter, ending in September, UK growth dropped slightly from 3.2% to 3% on an annualised basis, and in particular Mr Peston singles out the hospitality and distribution sector for attention.

This industry – which includes retail distribution, as well as hotels and restaurants – was coming off of quarterly growth of 4.9%, 4.4% and 4.4% in the previous three periods.

But in the latest figures, the sector – which Mr Peston calls a “proxy for household consumption” – saw growth drop to 3.8%, more in line with the economy as a whole.

Manufacturing also outpaced the overall average, at 3.4%, and while admitting this is a tiny sector relatively speaking, Mr Peston suggests this will still be seen as “useful rebalancing” by the Chancellor.

Overall, this makes the economy “a bit less dependent on consumption and services”, which should come as good news in light of the inherent relationship between household consumption and price inflation.

“The Bank of England’s Monetary Policy and Financial Policy committees need have fewer worries that the economy is already becoming too dependent again on debt-fuelled household spending,” Mr Peston writes.

However, there is a new threat to the UK’s economic recovery, and this one comes from overseas, where stagnation in the eurozone could lead to reduced demand for British exports.

If this is the case in the months to come – and particularly if a major European economy such as France or Germany were to crash – then the UK would be left trying to fill the gap left by vanishing export orders.

This in turn could tip the balance back towards domestic consumption, once again putting pressure on the British consumer to effectively bail out the nation’s economy through a ‘keep calm and shop on’ kind of attitude.

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