The U.K. economy avoided recession in the first quarter as initially estimated, but the detailed breakdown of gross domestic product highlighted major contribution coming only from built up stocks of companies.
Gross domestic product grew 0.3 percent sequentially in the first quarter, offsetting the last quarter's 0.3 percent fall, second estimates from the Office for National Statistics showed Thursday. The figure came in line with the estimate released on April 25.
On a yearly basis, GDP advanced 0.6 percent in the first quarter, compared with an increase of 0.2 percent in the previous quarter, data showed.
The detailed version revealed that sequential growth was driven by an increase in inventories and a marginal rise in household spending.
Although household final consumption expenditure increased for the sixth consecutive quarter, it rose by meager 0.1 percent in the first quarter. At the same time, government spending was unchanged.
Investment continued to impact negatively on expenditure growth, falling by 0.8 percent, the third decline in a row. The level of inventories, including the alignment adjustment, increased by GBP 2.5 billion in the first quarter.
If the changes in inventories are excluded, GDP would have shrunk by 0.1 percent, Martin Beck at Capital Economics estimated.
The breakdown of data is rather disappointing and not that supportive to hopes that the economy is establishing a firmer footing, IHS Global Insight's Chief UK economist Howard Archer said. He suspects that the upside for activity will remain limited for some time to come.
The deficit in net trade widened to GBP 6.3 billion in the first quarter from GBP 6 billion in the prior quarter. Exports and imports were down 0.8 percent and 0.5 percent, respectively.
On the output side, growth was heavily dependent on services output, data showed. Output of the service sector advanced 0.6 percent after being unchanged in the final quarter of 2012.
Production output increased 0.2 percent, after an extended and later than usual period of maintenance on North Sea oil rigs led to a negative impact on production in the previous quarter. At the same time, manufacturing output was down 0.3 percent.
Following a 0.8 percent rise in the fourth quarter, construction output fell by 2.4 percent. The first quarter figures for production and services were left unrevised, while construction output was revised from the previously estimated 2.5 percent decline.
The International Monetary Fund on Wednesday said the U.K. economy is still a long way from "a strong and sustainable recovery." Given the weak growth prospects, it should adopt policies to re-balance the economy.
The Bank of England kept its quantitative easing unchanged at GBP 375 billion and its interest rates at a historic low 0.50 percent. The bank expects the economy to expand 0.5 percent in the second quarter.
The IMF advised central bank to consider further purchases of gilts and to provide assurance to households and investors that policy rates will be kept low until the recovery reaches full momentum.
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