London, March 26 (Bloomberg) -- The U.K. grew faster than expectedin the fourth quarter, as consumer demand kept services expanding,offsetting a decline in industrial output. Europe's second-largest economy grew 0.4 percent in the last quarterof the year, National Statistics said more than the 0.3 percenteconomists expected and up from the 0.3 percent the statistics officehad previously estimated. The figures show Europe's second-largest economy wasn't hurt bydisruptions in rail service and flooding in the countryside during thefourth quarter. Although today's report doesn't take into account theeffects of the foot-and-mouth epidemic now affecting rural Britain, itdoes make it more likely the Bank of England will conclude theeconomy can also withstand a slowdown in the U.S. and will put offcutting interest rates. ``Where's the recession?'' said David Norwood, the chief executive ofBeeson Gregory Group Plc, a U.K. investment bank and brokerage. ``Ican't get a booking in a good restaurant. I should be getting a bookingeasily if it were a recession.'' The economy grew 2.6 percent from the same period last year, up fromthe third quarter's 2.5 percent and from the earlier estimate, also 2.5percent. For all 2000, National Statistics said, the economy grew 3percent, the fastest since 1997. A separate report today showed the current account deficit narrowed to3.7 billion ($5.3 billion) from a revised 4 billion pounds in the thirdquarter, previously estimated at 3.17 billion.
Confident Consumers In the domestic economy, spending rose 0.3 percent for the quarterand 2.9 percent for the year, after rising 1 percent for the quarter 4.4percent from a year ago. Consumer spending, which accounts for two-thirds of GDP, continued to grow, rising 0.6 percent for the quarter and3.4 percent for the year. Perhaps more important, consumers also saved more as their incomesrise. Disposable income grew 2.7 percent for the quarter and 3.5percent for the year. And consumers saved 5.5 percent more in thequarter. That was the first increase in four quarters. Savings for thewhole of 2000 were 4.5 percent. ``Household consumption is still quite strong,'' said Brian Hilliard, aneconomist at Societe Generale. ``The rise in the savings ratio seemsto indicate a pickup in disposable income, so I don't think it is a strongsignal that consumers are battening down the hatches.
Foot And Mouth Outbreak
Today's report shows the state of the economy before foot-and- mouthdisease broke out among farm animals in late February, though. Thatoutbreak will cost Britain at least 9 billion pounds, according to theCentre for Economics and Business Research, a consultancy. Afurther 2.1 billion pounds is likely to be lost in 2002, mostly because oflost tourism. Lost tourist trade is more of a threat than lost exports of lamb or pork.Tourist industry officials are worried that images of slaughtered andburning livestock on televisions around the globe will keep peopleaway. The epidemic is not expected to peak until this summer, themain tourist season. Agriculture accounts for 1.8 percent of the British economy; tourism,for about 7 percent. Where agriculture is worth about 12 billion poundsa year, tourists to the countryside in England alone is worth thatmuch, the English Tourism Council estimates. Overall, tourism broughtin 64 billion pounds in 1999, the culture department said. ``The cloud on the horizon is the foot-and-mouth disease, and theimpact it may have on tourists visiting London,'' said Les Collins, thecompany secretary at Fortnum & Mason Plc, a U.K. luxurydepartment store on London's Piccadilly. ``Where the tourist isimportant is in terms of regular business during the summer months,and that's what worries us.''
More Spending
Some of that will be offset by government compensation to farmerswhose animals were slaughtered, although so far no provision hasbeen made for compensating the tourist industry. In the fourth quarter,government spending rose 0.3 percent for the quarter and 2.9 percentfrom a year ago. Investment by companies rose 2.6 percent in the fourth quarter,rebounding from a decline of 0.5 percent in the third quarter.Investment rose 3.2 percent from a year ago. The implied deflator, which is the broadest measure of price increasesin the economy, rose 0.4 percent from the third quarter and 1.3 percentfrom the same period a year ago. That was the lowest annual increasesince the third quarter of 1994, indicating inflation poses no threat tothe economy. Growth in production industries -- factories, mines and utilities -- fell0.6 percent during the quarter, and rose 0.7 percent from the yearearlier. The decline in production was pulled lower by oil and gasextraction, which fell 9.2 percent over the quarter, the biggest quarterlydecline since the third quarter of 1990. In the third quarter it expanded0.9 percent and 3.5 percent. Services -- which account for two-thirds of the economy -- expanded0.7 percent from the third quarter and 3.3 percent from the fourthquarter of 1999. Wages rose 1.3 percent in the fourth quarter and 5 percent from a yearearlier. The total growth for the year was 5.6 percent, the lowest ratesince 1996.