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UK Economy Said to Have Expanded 0.7% between November and January: NIESR

H.S. Borji
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UK gross domestic product grew at a steady rate in three months through January, as the domestic economy remained resilient in the face of plunging energy prices and a crumbling Eurozone.

The UK economy accelerated 0.7 percent between November and January, following a 0.6 percent increase in the previous three month period, the National Institute of Economic and Social Research reported today.

UK GDP growth dropped to 0.5 percent in the fourth quarter of 2014, compared with forecasts calling for 0.6 percent, the Office for National Statistics reported last month. On an annual basis, growth was 2.7 percent, compared to 2.6 percent in the previous quarter.

Disappointing factory production was offset by stronger consumer spending in the fourth quarter, official data showed. UK retail sales increased 4.3 percent annually in December, following a 6.4 percent year-on-year gain in November.

In a separate report today the ONS said industrial production declined unexpectedly in December, a sign cheap energy prices were weighing on North Sea oil extraction. Industrial production declined 0.2 percent in December and was up only 0.5 percent annually. Economists forecast a monthly gain of 0.1 percent, which would have translated to a year-on-year gain of 0.7 percent according to the same estimates.

Manufacturing activity grew at a slower rate in December, climbing 0.1 percent following a 0.8 percent gain the month before. Year-on-year, UK manufacturing production grew 2.4 percent, official data showed. Both figures – the monthly and annual gains – were higher than forecast.

The UK manufacturing industry was off to a good start in 2015, thanks to higher output and new orders, according to the Markit/CIPS purchasing managers’ index. Cheap energy prices also helped manufacturers trim input costs, which fell at the sharpest rate since May 2009. The final manufacturing PMI for January was 53.0, up from 52.7 in December.

“The domestic market remains the main growth driver, as the UK economic recovery provides a steady stream of new business,” said Markit senior economist Rob Dobson in a statement.

He added, “There were also signs of improvement in overseas markets, with new export orders posting the first meaningful gain for five months, but it still looks as if lackluster demand from the eurozone in particular remained a headwind for British manufacturers. This could soon change, however, if quantitative easing by the ECB has the desired effect of boosting demand in the euro area.”

The UK economy is forecast to grow 2.7 percent this year, according to the International Monetary Fund’s January outlook report. The estimate was unchanged from the previous forecast. The economy is expected to grow 2.4 percent in 2016, slightly below the previous estimate of 2.5 percent. By comparison, the euro area is forecast to grow just 1.2 percent this year and 1.4 percent in 2016.

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