Business investment unexpectedly drops in third-quarter, GDP unrevised

By David Milliken and William Schomberg LONDON (Reuters) - British business investment unexpectedly fell in the third quarter of 2014 and growth relied heavily on household spending once again, raising fresh questions about the resilience of the economy's recovery. Wednesday's more detailed breakdown of what drove growth in the three months to September confirmed that gross domestic product grew 0.7 percent during the quarter, unchanged from last month's preliminary estimate. That was down from 0.9 percent in the second quarter, the joint highest quarterly rate in four years. Year-on-year, GDP grew 3.0 percent, confirming Britain is one of the world's fastest-growing rich economies this year, the Office for National Statistics said. But business investment fell by 0.7 percent in the third quarter, its first drop in more than a year and a sharp slowdown from the second quarter's 3.3 percent. For the year, investment growth slowed to 6.3 percent, below forecasts of 9.7 percent. By contrast, consumer spending, which accounts for nearly two-thirds of Britain's economic expenditure, rose by 0.8 percent, its fastest quarterly pace in more than four years. A separate survey showed retailers were confident that shoppers would spend more at Christmas, although sales growth slowed in November. The Bank of England hopes business investment will help the economy grow over the long term. But the slump in the euro zone, the destination of most British exports, may have discouraged companies from pumping money into their businesses. Britain's trade gap weighed on growth in the third quarter. A finance ministry spokesman said the weakness in the euro zone and volatile financial markets meant Britain's economy faced a "critical moment," echoing comments from Prime Minister David Cameron, who said last week "red warning lights" were flashing about the state of the global economy. The opposition Labour party, which is challenging the government's economic record before May's national elections, accused Cameron of making excuses for a slowdown. EEF, a group representing British manufacturers, said weak exports meant finance minister George Osborne needed to provide more support for investment and foreign trade when he announces a half-yearly budget update on Dec. 3. Economic growth has so far failed to provide significant wage rises for most Britons, although earnings show signs of picking up. Employee compensation rose an annual 2.1 percent in the third quarter, faster than in the second quarter, the ONS said. (Writing by William Schomberg; Editing by Larry King)