Economic statistics produced by the Office for National Statistics (ONS) for October and November suggest a continuation of the subdued economic conditions that have prevailed in recent months.

Manufacturing output fell in October, and construction activity remained weak. Labour market indicators were also weak, with a further rise in unemployment in the latest three months, accompanied by continuing modest earnings growth.

Bright spots were relatively narrowly confined – for instance the strong growth in exports in October, albeit from a low September base, and the continuing buoyancy of online retail sales in November. Consumer price inflation eased for the second month running to an annual rate of 4.8 per cent in November.

The latest GDP estimates for the third quarter of 2011 also show patchy growth. Even in the services sector, which provided the mainstay of aggregate economic growth, strength was not broadly based, being confined to a small number of sub-sectors. In terms of expenditure components, the main drivers of sustainable growth – household consumption, business investment and overseas trade – were all noticeably weak.

GDP grew by 0.6 per cent between the second and third quarters of 2011, revised up slightly from the previous estimate of 0.5 per cent. The output and income estimates grew slightly faster than this, with the expenditure estimate growing more slowly at 0.4 per cent. In all three measures of GDP – based on output, expenditure and income estimates – growth is concentrated in a relatively narrow range of components.

Household consumption has fallen in real terms over the past year, and in the latest quarter is only one per cent above its lowest level during the recession in 2009. This is in keeping with the weak financial position of households and low levels of consumer confidence. Real household disposable income is now estimated to have fallen slightly in 2010 and, while modest growth resumed in the latest two quarters, it remains below the low level seen in 2010.

The current account balance plus the capital balance reflects the extent to which the UK is a net lender or net borrower with the rest of the world. In 2010, the UK ran a current account and capital account deficit of £44.9 billion, the highest on record, and in the third quarter of 2011 the current account and capital account deficit was £14.2 billion, also the highest on record. The two main drivers of these unprecedented current account deficits were:

  • the significant trade deficit, which is primarily driven by the goods trade deficit, and
  • the fall in the income surplus which resulted from UK owned banks abroad and foreign subsidiaries of UK private non-financial corporations making lower profits, or losses, whilst foreign owned banks operating in the UK made larger profits.

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