The UK real GDP growth was 0.6% q/q and 2.9% y/y in the fourth quarter. All sectors of economy excluding mining, electricity, gas and water supply, as well as agriculture and health care, contributed to GDP growth rate deceleration.
The volumes of mining and quarrying sphere soared by 0.3% q/q. The pace of growth reached to 1.7% q/q in electricity, gas and water supply sector and accelerated the growth rate to 4.3% for the last twelve months. As a result, the dynamics of manufacturing became positive. However, it is important to note that manufacturing share in GDP is about 18.6%.
This gain was partially offset by a decrease in services providing sector. The growth in financial and business services industry was 0.5% q/q and 4.3% y/y, due to the weakening of real estate and financial intermediation services demand. The share of this industry in the UK economy and growth rate among GDP components is the highest.
There was posted 5.8% y/y increase in post and telecommunication services sector, following a 7.6% gain in the third quarter of last year. In spite of Christmas and New Year holidays consumers expenditure on restaurants and cafes services declined. In particular, this sector fell by 0.3% q/q. Due to the crisis in the US real estate marke the UK construction sector growth was less then in previous periods. This industry showed 2.2% growth over year, which has been 1.2% lower from the third quarter.
The breakdown of GDP expenditure (table 1):
The crisis in the Sub prime and Alt-A mortgage backed bonds and structured instruments markets had a negative impact on investors’ sentiment. They reduced investments by 0.5% q/q and thus decelerated the over year growth rate to 0.9%. Relatively high level capacity utilization in manufacturing and shifting an industrial production to the regions with low labor costs had a lot do to do with the investments reduction.
Consumption expenditures rose by 2.7% compared with a 3.6% increase in the third quarter of 2007. It has been the highest growth rate among the main components of GDP. They rose by 1% q/q, which has been 0.8% lower than the prior quarter.
Despite the record low level of the UK pound against Euro export dropped down by 0.5% q/q. Export reduction in the forth quarter favored sharp deceleration of the over year growth rate. The British not only sold less goods and services abroad, but also imported less. In the fourth quarter import declined by 1.2% compared with the previous quarter. Due to relatively high reduction pace of export the impact of international trade on GDP was negative.
The unfavorable impact of the above mentioned components was partially offset by significant increase of inventories. Their values edged up by 13.9% compared with the third quarter. Another source of economic expansion is still government expenditure, which showed moderate growth during the last one and a half year.
The growth rate of the UK GDP is moderating, but remains high. The reasons of this are robust economic expansion in Asian and Euro Area countries, gradual appreciation of financial assets and real estate prices, which support the current level of personal expenditure. Foreign labor force inflow is another source of economic growth as this holds back wages gain at current levels and decelerates inflation. Besides, investment conditions in the UK remain more attractive than in the other EU countries, thanks to the broad legislation and strengthening position as the world financial center, as well as due to the weakness of the UK pound against Euro.
On the other hand record high oil prices, huge losses of British banks and declined house prices will have a significant negative impact on the UK economy. On the basis of the above mentioned we think that the growth rate of the UK GDP will not exceed 0.5% q/q level (chart 1).
UK ECONOMIC INDICATORS
Table 1
|
|
4q. 2007
|
3q. 2007
|
2q. 2007
|
1q. 2007
|
|
Real GDP
|
|
|
- y/y
|
2.9
|
3.3
|
3.2
|
3.1
|
|
- m/m
|
0.6
|
0.7
|
0.8
|
0.8
|
|
Private consumption, y/y
|
2.7
|
3.6
|
2.8
|
3.4
|
|
Government consumption, y/y
|
2.2
|
1.9
|
2.0
|
1.4
|
|
Fixed capital formation, y/y
|
5.1
|
5.1
|
6.3
|
9.0
|
|
Export, y/y
|
0.6
|
1.2
|
-12.0
|
-10.2
|
|
Import, y/y
|
2.4
|
3.5
|
-10.3
|
-7.4
|
Source: National Statistics Online
Chart 1
Source: National Statistics Online
