Economy boosted with GDP but consumer confidence declines

GDP increased by 1.2% in the second quarter of this year – raising the level 1.7% more than the corresponding quarter last year.

However, the latest data from GfK NOP shows UK consumer confidence dropped by more than expected in September.

The GfK NOP index of sentiment fell to minus 20 after an improvement to minus 18 in August.

Data from the Office for National Statistics showed output from the production industries during the quarter remained unrevised at 1%. Within production, manufacturing output increased by 1.6%, but utilities output fell by 1.3% and mining and quarrying output was flat.

Construction output rose by 9.5%, revised up from 8.5% in the previous estimate.

Output in the service industries was revised down to 0.6% in the latest quarter, up from growth of 0.2% in the previous quarter. Growth during the quarter was led by a rise of 1% in business services and finance, offset by a fall of 1.5% in transport, storage and communications services.

Household expenditure rose 0.7% compared with flat growth in the first quarter of 2010.

Government final consumption expenditure rose by 1% and is now 1.9% higher than the second quarter of 2009.

Gross fixed capital formation rose 1.4% and remains 3.7% higher than the second quarter of 2009.

Inventories rose by £0.1bn on the quarter.

In the second quarter of 2010 the trade deficit in real terms increased to £10.9bn from £10.3bn.

Exports of goods and services rose 2.3% whilst imports rose 2.4%.

Elsewhere, the latest CBI quarterly Distributive Trades Survey showed sales on the high street were higher than they were a year ago – the third consecutive year-on-year increase and a figure that surpassed expectations.

Retailers now expect another strong rise in sales next month. Of the retailers surveyed, 60% said their volume of sales rose during September, while 11% said it fell, giving a balance of +49%. This was the highest balance since May 2004 (+51%), and compares with an expected figure of +39% last month.
 
Sales volumes (+14%) were also above average for the time of the year for the first time since June 2007.
 
This increase was also reflected in the volume of orders placed upon suppliers (+39%), which rose strongly again on a year ago, surpassing last month’s prediction of +29%.
 
The clothing and footwear & leather sub-sectors saw particularly strong sales growth, which are likely to have been boosted by the arrival of new autumn ranges. Solid sales growth was also recorded in the furniture & carpets sector.
 
Looking to October, a balance of +47% of firms expect a higher volume of sales than a year ago.
 
Ian McCafferty, CBI chief economic advisor, said: “High street sales have performed well again this month, with growth better than retailers predicted. Retailers expect sales growth to continue next month and, as we get closer to January, sales will be helped by households seeking to beat the VAT rise. However, weak prospects for take-home pay mean that consumer spending is likely to be fairly restrained in 2011.”