Households continue to spend more by saving less - EY ITEM Club

28 March 2014

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  • Households continue to spend more by saving less…
  • …but more evidence of growth broadening out...
  • ….and a strong start to 2014

Martin Beck senior economic adviser to the EY ITEM Club, comments on the latest national accounts release:

“GDP growth in the final quarter of 2013 remained unchanged, despite another small downward revision to 2013 as a whole. The composition of growth was promising as exports increased at a solid clip, while two of the major components of investment – residual and business – both grew at a robust pace.

“That said, with household real disposable income seeing a fall in Q4, growth in consumer spending was financed by another decline in the household saving ratio. However, with real wage growth returning to positive territory as early as April, the foundations for further recovery in consumer spending should be more solid going forward.

“Meanwhile, there was some good news on rebalancing. Services exports came roaring back in the final quarter after a sustained period of weakness, and goods exports also increased. This contributed to the UK trade deficit almost halving in Q4 compared to the previous three months. But a deterioration in the investment income balance meant that the UK continued to run a whopping current account deficit in Q4.

“The outlook for Q1 is looking bright - services output in January grew at the fastest annual rate since early 2008. Combined with strong retail sales and upbeat survey data, GDP should expand at around 0.7% in the first quarter of 2014, while we expect growth to come in around 2.7% in 2014 as a whole.”