UK GDP: 2013q1 second estimate

The second estimate of UK GDP in the first quarter of 2013 confirmed that the economy grew by 0.3% q-o-q. Consumer spending (up by 0.1%) and stockbuilding (up £2.5 billion) were the main contributors to growth.

The increase in consumer spending was the sixth quarterly rise in a row, but was marginal on this occasion as the squeeze on real incomes resumed after abating slightly in 2012. Buoyant new car sales probably contributed to the increase and retail sales which account for some 40% of total spending rose by 0.4%, suggesting that spending on other areas remained extremely weak.

Meanwhile investment spending fell again, by 0.8% – the third consecutive quarter of decline – and within this, business investment was 0.4% lower continuing the ongoing caution on the part of companies in the face of a lacklustre medium-term economic outlook. The deficit in net trade at £6.3 billion in the quarter, compared with £6 billion in 2012q4, was a slightly greater drag on growth than in the final quarter of 2012 as weak demand from the eurozone continued to hamper exports.

The reliance on stockbuilding for much of the growth in 2013q1 is disappointing but our baseline view, reinforced by recent PMI data, is for the underlying recovery to continue. However, the pace will remain gradual as pressures on consumer incomes weigh on demand and the likely contraction in the eurozone remains a major constraint on export prospects. Our forecast is for GDP growth this year of 0.9%.