December 22, 2017 / 10:43 AM / a year ago

UPDATE 1-Pinched UK consumers raise spending at weakest pace since 2012

    * Q3 GDP confirmed at +0.4 pct qtr/qtr, raised to +1.7 pct
    * Household incomes almost flat, savings fall
    * Manufacturers see growth as world economy picks up
    * Current account gap falls to 4.5 pct/GDP but overshoots

 (Adds comments from economist)
    By William Schomberg and Kate Holton
    LONDON, Dec 22 (Reuters) - British households turned
increasingly cautious in the three months to September as they
raised their spending at the slowest annual pace since 2012,
according to official data published on Friday.
    In figures which underscore the headwinds facing the world's
sixth-biggest economy as Brexit approaches, the Office for
National Statistics confirmed that gross domestic product grew
by 0.4 percent on the quarter.
    That was in line with the median forecast in a Reuters poll
of economists.
    Annual growth was unexpectedly revised up to 1.7 percent
from 1.5 percent, but the increase mostly reflected changes to
data going back to the start of last year and it was the weakest
increase since early 2013, the ONS said.
    Households, under pressure from rising inflation and weak
wage growth, saw almost no growth in their overall incomes,
forcing them to dip into their savings.
     Britain has grown more slowly than other big European
economies this year as the rise in inflation, caused largely by
the fall in the value of the pound after the 2016 referendum
decision to leave the European Union, caught up with consumers.
    "The figures confirm the pressure on households," Philip
Shaw, an economist with Investec, said.
    An expected fall in inflation next year and forecasts for a
long-awaited rise in wage growth should ease some of the
squeeze. "But we will have to wait to see what actually
happens," Shaw said.
    He noted that in contrast to the strain on consumers,
British factories were growing strongly with manufacturing
output up by 3.3 percent in annual terms, helped by the
recovering global economy and the weaker pound.
    Manufacturing accounts for only about 10 percent of
Britain's economy, compared with 80 percent from the services
sector which grew by an annual 1.4 percent, reflecting the weak
domestic economy.
    Sterling and British government bonds were little changed by
the data.
    The Bank of England raised interest rates last month for the
first time in more than 10 years, in part because it expects
wage growth to gain more speed. It is expected to raise them
twice more over the coming three years. 
    The BoE said last week that the economy appeared to be
slowing slightly in late 2017, and Brexit remained a big
uncertainty going forward.
    Friday's data showed household disposable incomes, adjusted
for inflation, grew by 0.2 percent, down from growth of 2.3
percent in the second quarter although better than a fall in the
first three months of the year.
    The household saving ratio fell to 5.2 percent from 5.6
percent in the second quarter but was higher than a low of 3.7
percent in the January-March period.
    Household spending rose by an annual 1.0 percent, its
weakest increase since early 2012. 
    The ONS said households were net borrowers - meaning their
outlays were bigger than their incomes - for four successive
quarters for the first time since records began in 1987. 
    Like consumers, many businesses have also turned cautious
due to uncertainty about what leaving the European Union means
for their exports and their ability to hire skilled workers.
    Business investment rose by 0.5 percent in the quarter and
was up 1.7 percent from a year earlier. That represented
slightly stronger growth than the previous reading for the third
quarter but remained weaker than in recent years.  
    In a sign of how the economy started the fourth quarter the
ONS said Britain's dominant services sector grew by a monthly
0.2 percent in October after zero growth in September.
    Comparing the three months to October with the same period a
year ago, growth was its weakest in four years at 1.3 percent.
    Britain's current account deficit, which hit an annual
record high of 5.8 percent of GDP last year, stood at 4.5
percent of GDP in the third quarter, down from 5.1 percent in
the second quarter.
    In cash terms, the deficit was 22.8 billion pounds, above
the median forecast of 21.2 billion pounds in the Reuters poll.
    Economists mostly expect the deficit to narrow as the fall
in the value of the pound boosts exports and reduces the
imbalance between the returns on foreign investment held in
Britain and on British investment held abroad.
    Nonetheless, Britain's budget forecasters said last month
they expected the deficit to remain high. BoE Governor Mark
Carney has said the shortfall means Britain remains dependent on
"the kindness of strangers" to fund itself.

 (Writing by William Schomberg; Editing by Hugh Lawson)
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