Foreign trade poses major drag on UK economic growth

Foreign trade put the biggest drag on record on British economic growth last quarter, as a weakening global economy and surging demand for imports slowed Britain’s recovery from the financial crisis, data showed.

The economy grew 0.5% in the third quarter, said the Office for National Statistics, confirming a preliminary reading and slowing from 0.7% growth between April and June.

The slowdown reflects a global weakening led by emerging markets such as China, while exporters have struggled with the rise in sterling.

However, the data was in line with a forecast in a Reuters poll, and sterling edged up against the euro and dollar on the day, reducing some of its earlier losses.

Consumer spending remained strong.

However, trade lopped 1.5 percentage points off the economic expansion from July to September.

That marked the biggest quarterly drag on gross domestic product growth since records began in 1997 and a sharp turnaround from the second quarter when trade boosted GDP.

Imports surged by the most in nearly 10 years, up 5.5% from the second quarter and overshadowing a much weaker rise in exports.

Overall the economy grew 2.3% compared with the same period a year ago, down from 2.4% in the second quarter and lower than 2.9% growth for all of 2014, when Britain outpaced all other major advanced economies.

UK chancellor George Osborne on Wednesday spelled out tough spending cuts for several government departments, although they were not as severe as some had expected.

Despite concerns about the global economy, business investment rose 2.2% in the three months to September and was up 6.6% on the year, figures likely to be welcomed by policymakers who want to see a more balanced recovery.

Britain has relied on consumers to drive much of its growth since 2013 and consumer spending remained strong, growing 0.8% for the third consecutive quarter.

It was up 3.1% from a year earlier, matching the fastest growth rate since late 2007, before the financial crisis.

Households have benefited this year from a pick-up in wages while inflation has hovered around zero and interest rates remain at a record low.

The Bank of England, which is considering when to start raising interest rates, has said it expects GDP growth in the third quarter to be revised up to 0.6%.

It is forecasting 2015 growth of 2.7%.

That might prove optimistic, based on the latest data and Britain’s official growth forecasts which were confirmed this week at 2.4% for 2015.

Two surveys earlier yesterday also showed the dip in the economic mood as consumer morale slipped to its lowest level in six months in November and growth among services companies cooled.

Growth in house prices slowed too, mortgage lender Nationwide said.