The UK economy has grown better than previously thought this year, new data show, but plunging exports and a current account deficit ballooning to a 24-year high sowed doubts about the recovery.
Revised official figures over the last couple of years showed gross domestic product (GDP) was around £2.2bn bigger than previously thought, with output 1.9 per cent ahead of the same time last year – up from 1.4 per cent.
They showed Britain’s economy was now two per cent behind its pre-recession peak in 2008, rather than 2.5 per cent as previously thought, adding to hopes that the end of the prolonged economic downturn is close at hand.
However, further data from the Office for National Statistics fuelled worries that the consumer-led recovery, apparently funded by a raid on savings, is unsustainable.
Exports fell by 3 per cent in the third quarter – revised up from 2.4 per cent – while the current account deficit of £20.7bn, or 5.2 per cent of GDP, was the highest since the same period in 1989.
Samuel Tombs, UK economist at consultancy Capital Economics, said: “The economy’s growth spurt seems to be exacerbating existing imbalances in the economy, rather than helping them to heal.”
Meanwhile, ratings agency Standard & Poor affirmed Britain’s triple-A credit status but warned that the outlook remained negative, saying this reflected “risks to the sustainability of growth”.
The new GDP figures showed growth in 2012 was 0.3 per cent, up from a previous estimate of 0.1 per cent, while the figure for the first quarter of this year was revised up from 0.4 per cent to 0.5 per cent and for the second quarter from 0.7 per cent to 0.8 per cent.
Growth in the third quarter remained unchanged at 0.8 per cent, according to the data, but the construction sector’s performance was notched up from 1.7 per cent to 2.6 per cent.
Howard Archer, chief UK and European economist at IHS Global Insight, said it meant the overall expansion for the year could rise from 1.4 per cent to as high as 1.9 per cent.
The Treasury acknowledged risks remained, highlighted by the soaring current account deficit, caused by plummeting exports, a fall in UK earnings on foreign investments, and a rise in foreign earnings on UK investments.
Figures showed that the net trade deficit more than doubled between the second and third quarter from £4.2bn to £8.7bn.
Investment saw a welcome rise of £800m to £53.6bn over the same period, although this has been largely flat over the last four quarters at a range between £52bn and £54bn.
Within this, business investment was up £600m to £30.1bn, but this was 5.3 per cent lower than a year earlier.
Household spending was up by 2.5 per cent on the same quarter last year – the highest such rise since the start of the downturn at the beginning of 2008.
The savings ratio – which measures the amount households have available to save – fell from 6.2 per cent to 5.4 per cent from the second to the third quarter. For the whole of 2012 it had been at 7.2 per cent, up from 6.7 per cent in 2011.
Elsewhere, the public finances took a knock as borrowing for November was up £900m to £16.5bn compared to the same period last year.
However, this was largely attributed to changes in the way local authorities are funded, as Whitehall government receipts rose and spending fell.
Underlying public sector debt rose to a new monthly high of 76.6 per cent of GDP, with the previous high of 76.5 per cent set in September.