The British economy: a down-beat start to the New Year
In this perspective Ruth Lea, economic adviser to the Arbuthnot Banking Group, discusses the latest British economic data.
The main points to note are:
– The ONS unexpectedly revised GDP growth for 2015Q3 down from 0.5% to 0.4%. Moreover, growth for 2015Q2 was revised down from 0.7% to 0.5%.
– November’s public borrowing data were worse than expected. The PSNB was £14.2bn compared with £12.9bn a year earlier. Moreover, the progress in deficit reduction so far in FY2015, compared with FY2014, has been disappointing. If the OBR’s November forecast for FY2015 is to be met, the public finances will have to improve sharply in the final four months of the financial year.
– The current account deficit remained at £17.5bn (3.7% of GDP) in 2015Q3.
– On a trend basis the UK’s external deficit seems to be widening as Germany’s external surplus increases.
– Germany’s large surpluses reflect the success of its export-oriented economic growth model (as well as the weak euro), whereas the UK can be said to have a consumption-led model.
– As world trade slows, especially trade relating to the Emerging Markets, Germany is likely to be more adversely affected than the UK. The shares of German exports going to the slowing EM economies are higher than the equivalent UK ones. And the German economy is more dependent on exports than the UK’s.
Ruth Lea said:
“The British economic data released before Christmas were disappointing, though the gloom should not be overdone. Growth should continue and the public finances continue to improve. And the British economy’s relatively small exposure to the slowing emerging market economies works in its favour.”
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