Annual UK GDP growth: What do retailers need to know?

Why are we talking about this now?

Gross Domestic Product (GDP), which measures economic growth, grew by 0.7% in the fourth quarter of 2013 against the third quarter, which grew by 0.8%, according to data from the Office for National Statistics (ONS). Today’s figures mean the UK has delivered three consecutive quarters of growth.

Why is it significant?

The fourth quarter result puts the annual growth rate at 1.9%, the fastest annual growth rate since before the recession in 2007.

Output increased in three of the four industrial groups, as agriculture output jumped 0.5%, production increased 0.7%, while services, which includes retail, drove the highest growth at 0.8%. Output in construction fell 0.3%.

Capital Economics UK economist Martin Beck says: “We’ve now had three consecutive quarters of growth and so it shows the recovery is more entrenched. We think that growth this year will run at about 3%, as inflation is dropping, which is keeping interest rates low.”

What does it mean for retailers?

Consumers are likely to react favourably to the positive economic news which could encourage them to spend in a more stable economy, Beck says.

The spending figures are not broken out into sectors, so it is not clear what role UK retailers played in economic growth in the final quarter although the service sector was the top performer. However, official Government retail sales figures from the ONS showed the fourth quarter performance was weaker than the third quarter, which could mean there is a way to go until consumer spending across retail returns to pre-recession levels.

Should retailers remain cautious over the trading environment?

Despite the figures recording the fastest annual growth rate since 2007, the 1.9% annual growth rate is well below 2007’s 3.4% pace.

And Beck adds that it will not necessarily be a bump-free road to recovery.

He says: “The housing market is recovering rapidly but history suggests that economies driven by property are not the most sustainable. And so it might be dependent on what the Bank of England might do if they change the monetary policy prematurely.”