UK fourth quarter GDP revised higher, ONS reveals

UK economic growth in the fourth quarter was unexpectedly revised higher by the Office for National Statistics on Thursday.

The final estimate of gross domestic product in the last three months of 2015 was an increase of 0.6% quarter-on-quarter, compared to the previous forecast of 0.5% and the third quarter's 0.4%.

Compared to the same period a year earlier, GDP is estimated to have risen 2.1% in the fourth quarter, up from the prior projection of 1.9% and in line with the third quarter's growth.

Consumer demand continued to drive the growth, with household spending rising 0.6% in the fourth quarter, unchanged from the previous three months.

However, real household disposable income fell 0.6% as in weak wage growth failed to keep up with prices.

“While today’s GDP figures are nothing to write home about, they are at least steady at a time when a possible Brexit has become a very real concern," said Dennis de Jong, managing director at UFX.com.

“George Osborne used his recent Budget speech to revise down growth forecasts, but the long-term challenge for the Chancellor remains finding a way to kick-start the economy. This won’t be easy against a backdrop of weak global demand, volatile financial markets and a domestic manufacturing sector reeling from yesterday’s Tata Steel announcement.”

The ONS also revealed that British current account deficit widened to £32.7bn in the fourth quarter from £20.1bn in the third quarter. Analysts had pencilled in a deficit of £21.2bn.

Howard Archer, chief UK and European economist at IHS Global Insight, said the widening of the current account deficit was a "particularly uncomfortable development" for the UK economy.

"While the markets have so far taken a relatively relaxed view of the UK’s elevated current account deficits, it could become an increasing problem if the markets lose confidence in the UK economy for any reason – especially given the size of the fourth quarter 2015 shortfall.

"This would make it harder for the UK to attract the investment inflows that it needs to finance the current account deficit and could weigh heavily down on sterling."

He said a potential trigger for the markets losing confidence in the UK economy could be a vote to leave the European Union in the 23 June referendum.

The Bank of England has indicated that it is monitoring whether the upcoming referendum impacts the inward flow of foreign direct investment and portfolio investment that are key in financing the current account deficit.

"Hopefully, the recent marked retreat in sterling can increasingly feed through to support UK exports, while it also boosts the profits earned on UK investment in Eurozone countries when translated into sterling terms," Archer said.