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Consumers driving demand

Britain’s economy grows at faster rate than first thought

Port of Grangemouth

Port of Grangemouth

Britain’s economy grew faster last year than earlier estimates had predicted. New figures show it rose 0.6% in the last quarter and by 2.3% over the whole of 2015.

However, the current account balance that showed a record deficit, equivalent to 7% of annual output.

Consumer demand remains the main driver of growth although real household disposable income fell 0.6% as rises in incomes failed to keep up with prices.

Output in Britain’s service sector – which makes up more than three-quarters of GDP – rose by 0.2% in January from December, slower than from the previous month.

Sterling gained around half a percentage point against both the dollar and the euro.

Andy Scott, economist at HiFX said: “Economic growth appeared to have slowed through the second half of 2015 which is one of the reasons the Bank of England have steered away from talking about raising interest rates, contributing to a weaker pound.

“This morning’s figures, however, point to a brighter end to last year and may reignite the prospect of an earlier rate hike, which is currently forecast not to happen until well into next year.”

Mr Scott added: “Concerns over the upcoming [European Union] referendum may be causing investors to withdraw investment from UK assets, putting sterling under pressure.

“With the polls remaining incredibly tight, we expect sterling to struggle to make significant gains until the outcome of the referendum is known as investors avoid Brexit risk.”

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