Belfast Telegraph

Car buyers boost consumer spending

Consumers spent an extra £661 million between April and June, lifted by purchases of cars which rose 4.5% on three months earlier.

Latest official figures showed household spending rose by 0.3% during the quarter - but this was revised down from an earlier estimate of 0.4% growth - making it the smallest increase for three quarters.

The third estimate of gross domestic product (GDP) in the second quarter was unchanged at 0.7%, the Office for National Statistics said.

But there was a sharp upward revision for construction, which is now estimated to have grown by 1.9% during the quarter from a previous 1.4% estimate, as state stimulus schemes fuel the housing market.

And Britain's factories also expanded more than thought, with manufacturing output rising by 0.9%, compared with a 0.7% first estimate.

Overall growth in the first quarter of this year was lifted to 0.4% from 0.3%, but g rowth in the third and fourth quarters of last year were revised down.

Economists said the figures showed Britain's recovery "gained momentum" in the second quarter, with hopes building that the economy can expand further between July and September.

Markit chief economist Chris Williamson said: " A further acceleration of growth looks likely in the third quarter in what's looking like an increasingly broad-based and sustainable-looking upturn."

Spending on transport, and cars in particular, was the biggest driver of rising consumer purchases, while there were also increases in spending on clothing and footwear. But there were falls in spending on food, alcohol and tobacco.

Rising spending on cars echoed recent industry figures from the Society of Motor Manufacturers and Traders which showed year-to-date car production is up 3.1%, at 984,545.

But the ONS said household spending is still 2.8% below its late-2007 peak.

Household disposable income rebounded by 1.5% in the latest quarter following a fall of 1.7% in the previous three months.

The household savings ratio also increased to 5.9% from 4.4% during the quarter - but down from 6.8% across the whole of 2012.

Separate data on investment by businesses cast a shadow over the largely positive set of figures, falling by £786 million or 2.7% on the prior quarter.

Lee Hopley, chief economist at manufacturers' organisation the EEF, said this highlights the "re-balancing challenge" for the UK economy.

Marcus Bullus, trading director at MB Capital, said: "Upbeat consumers and credit-fuelled demand will not be enough to drive the economy forward if Britain's businesses fail to invest."

But Ms Hopley said the better-than-expected manufacturing growth - the strongest quarterly expansion in almost three years - bodes well.

"With industry surveys also on the up, the prospects for the remainder of this year look better than we've seen for a number of years," she said.

The UK's dominant services sector recorded unchanged growth of 0.6% during the quarter.

Economists believe Britain could grow by around 1% in the third quarter amid more signs of expansion from factories, building sites, restaurants and law firms.

IHS Global Insight chief UK and European economist Howard Archer said: "The broad-based nature of second-quarter growth fuels hopes that growth can become more balanced and long-lasting.

"It looks highly possible that GDP growth in the third quarter will have been stronger still."