Exports gave a boost to Britain's economy in the third quarter of this year, contributing half of its 0.8 percent growth, but a slowdown in household and government spending highlight risks to the recovery ahead. Figures from the Office for National Statistics showed exports rose 2.2 percent between July and September, outpacing growth in imports for the first time in two years and accounting for 0.4 percentage points of overall economic growth.
But while the figures may reassure policymakers that a sharp fall in sterling since 2007 is helping to rebalance the economy, the recovery still faces headwinds from deep government spending cuts that will start to impact from next year. Most analysts reckon economic growth will slow in 2011 and Wednesday's data did little to alter the view that the Bank of England will leave interest rates at their record low 0.5 percent for many months to come to safeguard the recovery.
Indeed, new figures on expenditure showed household spending growth slowed to 0.3 percent quarter-on-quarter from 0.7 percent in the second quarter, while government spending grew by just 0.4 percent, less than half the pace of the second quarter.
The government plans to slash spending by around 81 billion pounds ($128.1 billion) over the next four years, with the loss of almost half a million public sector jobs. Welfare payments are also set to fall, while a rise in value-added tax from January will put further pressure on household finances. Economic growth in the last six months has been supported by construction output, which the ONS confirmed increased by 4.0 percent in Q3.
But the rebound follows a dip early this year due to icy weather and a rise in government spending ahead of its austerity drive, and is therefore unlikely to last. The ONS has already revised down its estimate of construction output growth in Q2. The gross operating surplus of corporations - a measure of profitability - rose by 7.3 percent in Q3, the highest since 1993, but separate data showed business investment fell 0.2 percent on the quarter, its first decline in almost year.
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