Annual growth rate in the year to the third quarter falls from 3% to 2.6%, while GDP per head is still below pre-reccesion levels

The last key economic data of 2014 dealt a double blow to the government with news of slower growth this year and a widening in Britain’s current account deficit to a new record level.

Data from the Office for National Statistics showed that gross domestic product rose by 0.7% in the third quarter of 2014 – unchanged on previous estimates.

But the ONS said growth in the five previous quarters had all been revised down slightly – reducing the annual growth rate in the year to the third quarter from 3% to 2.6%. It added that gross domestic product per head, which takes account of the UK’s rising population, was still below its pre-recession level.

Meanwhile, the UK’s current account – which measures trade in goods and services together with investment income and payments to multinational bodies – was in the red by £27bn in the July to September period of 2014. At 6% of gross domestic product, the current account deficit is now higher than it was during the so-called Lawson boom at the end of the 1980s.

The ONS said the main reason for the worsening current account was that receipts from Britain’s foreign direct investment abroad had fallen while receipts on foreign direct investment into the UK had risen. As a result, the deficit on the primary income account widened from £8.2bn to £12.6bn, helping to push the current account deficit up from £24.3bn in the second quarter.

David Kern, chief economist at the British Chambers of Commerce, said: “While the quarterly results remain strong, the stark revision in annual growth confirms that the pace of recovery is slowing. The most concerning aspect of these figures is that the current deficit has risen to an unsustainably high level – due to the fall in net investment. Although the economy continues to grow, the recovery is not yet secure and further efforts are needed to boost business investment and to help businesses export to foreign markets.”

An ONS breakdown of the economy’s performance in the third quarter showed that growth was heavily dependent on consumer spending, which rose by 0.9% on the quarter. Spending increased despite a 0.1% drop in households’ real incomes, with consumers running down their savings in order to make their purchases.

Sam Alderson, economist at the Centre for Economic and Business Research, said any further deterioration in the current account could put sterling under pressure.

“With the downward revisions to growth and a slightly less rosy outlook, financial markets may soon turn their attention to more concerning aspects of the UK economy such as the current account deficit. If the current account position continues to decline in the coming quarters, then a sterling sell-off may become a viable concern in the not-too-distant future.”

The ONS said GDP per head rose by 0.6% in the third quarter of 2014 but was 1.8% below its level when the economy plunged into its deepest post-war recession in 2008.

An alternative measure of national wellbeing – net national disposable income – remained flat in the third quarter and is 5.6% below its pre-recession peak. NNDI makes allowances for depreciation and for income generated in the UK that goes to overseas residents.