GDP data: round up

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Today's second release of ONS data confirm that manufacturing output and the UK economy as a whole continued to grow at a solid pace in the final quarter of 2013. Real GDP growth was unrevised at 0.7%, which was the same pace of expansion recorded by the manufacturing sector. The latter, as expected, was revised down slightly from the preliminary estimate of 0.9%, following a slightly disappointing December result and official revisions to earlier data.

This should not detract, however, from the encouraging profile of manufacturing growth during the course of 2013. After a weak start to last year, activity has expanded at a healthy clip in each of the past three quarters, and our survey data project a continuation of firm output levels in the opening months of 2014.

The estimate of full-year growth in 2013 was revised down slightly from 1.9% to 1.8%, but this is still the strongest rate of expansion since 2007.

Looking at the 2013q4 GDP data in more detail, overall industrial production grew by 0.5% (the fourth consecutive quarter of expansion), while output growth in the large services sector was unrevised from its preliminary estimate of 0.8%. Construction activity was a little stronger than previously thought, showing a modest rise of 0.2% compared with an earlier estimate of a slight fall. This followed two quarters of robust expansion.

Growth composition a little better…

Broken down by expenditure category, the GDP data show that output growth was again supported by household consumption, which rose by 0.4% (the ninth consecutive quarterly rise). However, there was also another encouraging uptick in business investment and—in marked contrast to the previous quarter—a moderate positive contribution from net exports.

The business investment data remain a volatile indicator, with the ONS again introducing significant revisions to earlier data. The revised figures do, however, point to a gradually improving trend. Business investment expanded by an estimated 2.4% in the final quarter of 2013, the fourth consecutive quarter of moderate growth. Compared with a year earlier, the level of business investment was 8.5% higher. This is a more encouraging picture, although investment still has a long way to go to return to its pre-recession level. Looking over a longer time horizon, business investment has actually been broadly flat in real terms since the ONS series began in 1997.

With the risks to the global economy appearing more balanced than for a number of years, one key question for 2014 is whether companies are feeling sufficiently confident to translate their strong investment intentions into concrete action. Next month's Budget must send out a powerful signal that government will continue to act on delivering a competitive business environment that will give the private sector confidence to invest. See what our Budget submission says here.

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