Consumer spending grows fast pace in Q4, says ONS

Consumer spending grows fast pace in Q4, says ONS

	Published : Sun, 26 Feb 2006 14:00 By : Andrew Stead Print this Story

LONDON: The pace of consumer spending in Britain picked up towards the end of 2005, rising by 0.7 per cent in the last quarter, the largest quarter-on-quarter increase since the autumn of 2004, according to the Office for National Statistics.

The ONS said its initial estimate for GDP growth in the fourth quarter of 2005 was unchanged at 0.6 per cent but it revised the annual rate a tenth of a point to 1.8 per cent.

Many economists now take the view that the Bank of England will be forced to cut the interest rates later this year. They feel the new data for the fourth quarter and the relatively healthy show of the economy may lead the bank not to look at the rates immediately, but a cut is still possible in May.

For 2005 as whole, the economy grew by an unrevised 1.8 per cent -- against 3.2 per cent in 2004, the weakest performance since 1992 and after the recession. Household spending growth stood at just 1.9 per cent, the weakest in a decade.

The central bank had argued in its Inflation Report last week that growth will recover to its historical average, while consumer spending will pick up steadily. The bank had forecast in November an annualised growth of 2 per cent for the fourth quarter of 2005. The Inflation Report has predicted the growth to be at an annualised 3 per cent by the end of 2006.

The optimism apart, many economists are doubtful whether the tempo in consumer spending is sustainable in view of the increasing rate of unemployment, higher taxes and increased energy bills.

The ONS report showed inflation in the public sector had slowed from more than 7 per cent at the start of 2003 to 2.3 per cent in the latest quarter. Analysts believe this has been as a result of large amount of money spent in services like education and health.

The ONS is apprehensive about the lower business investment. It had said earlier that investment had fallen by 1 per cent in the fourth quarter and grew by just 1.6 per cent in 2005 compared with 2004. This can have long-term impact on the economy, feels ONS.