Economic review

Abstract

The UK economy contracted by a revised 0.6 per cent in the second quarter, due to continuing falls in household consumption and business investment. Despite some impact from the vehicle scrappage scheme, household consumption fell due mainly to lower discretionary spending on services. Business investment is currently the main driver of the recession, and has fallen heavily since the start of 2009 due to the uncertain economic outlook. Weak consumption and investment spending has seen the savings ratio rise, and both the household and corporate sectors become net lenders. Government consumption and investment has continued to rise throughout the recessionary period. However, as fi scal revenues fall, public sector borrowing and debt has risen generating expectations that a period of fi scal austerity will be required. The current account has remained in defi cit despite an improvement in the trade balance as net investment income falls. However there is some evidence that the UK economy is undergoing some rebalancing away from domestic to external demand.