Stockpiling Boosts U.K. Economy; Current-Account Deficit Swells
Stockpiling drove the British economy in the first quarter as companies and consumers fearing an imminent no-deal Brexit sought to head off potential supply disruptions, figures published Friday confirm.
The Office for National Statistics said GDP grew an unrevised 0.5%, up from 0.2% in the fourth quarter. Stockbuilding contributed 0.9 percentage point to growth, the most since the end of 2016 and more than the 0.7 point originally estimated.
Separate figures showed the current-account deficit widened to 30 billion pounds ($38 billion), or 5.6% of GDP -- the most in more than two years.
Imports of goods surged almost 10%. Brexit stockpiling almost certainly played a role, though statisticians said much of the increase reflected shipments of unspecified goods such as non-monetary gold. Excluding these effects, the current-account deficit stood at 3.7%.
Manufacturing rose 1.9% during the quarter, the most for almost 20 years, as firms brought forward orders ahead of the original March 29 deadline to leave the European Union.
With the Brexit deadline extended, however, a stockpiling hangover will almost certainly hit the economy in the second quarter. Bloomberg Economics estimates GDP contracted for the first time since 2012.
Driving the deterioration in current account was the trade deficit, which widened to a record 47 billion pounds in value terms. This was partly offset by a significantly narrower deficit in investment income as foreign investors earned less on their holdings in the U.K.
Almost 7 billion pounds of inventory was added to the economy in the first quarter, helping to offset the drag on growth from net trade, which knocked off a record 3 percentage points. Consumer spending rose 0.6% and business investment ended four straight quarters of decline with a 0.4% rise. Government spending also posted a healthy increase.
With wage growth now outstripping inflation, real disposable income rose 0.5%, but pressures remain. The saving ratio fell to 4.1%, close to historically low levels, and households were net borrowers for a record tenth straight quarter, as they continued to spend and invest more than they received.
GDP rose an unrevised 1.8% from a year earlier. The annualized rate was 2%, compared with 3.1% in the U.S.
The U.K. financed the current-account deficit through “other investment,” where British investors withdrew overseas deposits while overseas investors increased their deposits with U.K. monetary financial institutions, the ONS said.
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