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Economy figures deal big blow to Osborne’s expansion boasts

Published:Wednesday | December 31, 2014 | 12:00 AMBy Emily Cadman and Jim Pickard
Chancellor George Osborne

Growth this year is likely to miss the government's 3 per cent forecast, undermining George Osborne's boast that the British economy was growing faster than any of its major rivals.

A series of official revisions to estimates of UK economic output showed the annual rate of gross domestic product growth in the third quarter falling from 3 per cent to 2.6 per cent.

The figures came as the US posted its fastest rate of expansion in more than a decade, with growth at an annualised rate of 5 per cent in the third quarter.

The UK setback came only a month after the chancellor told MPs the country was on track to be the "fastest growing of any major advanced economy".

Phillip Shaw, Investec chief economist, said there was "not much seasonal cheer" in the numbers and that there was now "no way" the UK economy was going to grow by 3 per cent overall for this year, as the Office for Budget Responsibility had forecast this month.

Sterling fell to a 16-month low against the dollar as traders bet that the Federal Reserve was increasingly likely to raise rates before the Bank of England.

An ally of Mr Osborne said official revisions "come and go", adding: "These are in no way a major blow. They are small revisions to past quarters that don't significantly change the picture of the recovery."

But Labour said the figures were disappointing given that growth had been revised downwards by the Office for National Statistics for five of the past six quarters - while exports and business investments were weak.

The new data also showed the country's current account deficit sank to a record £27bn in the third quarter, or 6 per cent of gross domestic product.

"The chancellor has totally failed to rebalance the economy as he promised," said Shabana Mahmood, shadow Treasury minister. These are concerning figures."

The ONS made the downward revisions due to weakness in the production industries and a greater drag from trade.

While growth in the third quarter was confirmed at 0.7 per cent, the previous downward revisions mean this increase came from a lower base, resulting in the cut in the annual GDP growth rate in the third quarter.

Mr Shaw cautioned that it was important to remember where the UK economy had been a couple of years ago. "We've made considerable progress, even if today's figures are a setback," he said. Samuel Tombs, senior UK economist at consultancy Capital Economics, said the latest figures "leave the UK's economic recovery looking more fragile than it seemed before".

A Treasury spokesman said euro area weakness and instability in markets meant now was a "critical moment" for the economy, and "we need to carry on working through our economic plan".

(c) The Financial Times Limited 2014