Economy grows by 0.6% thanks to World Cup and heatwave but cracks begin to show

The UK economy grew by 0.6% during the third quarter, but cracks are beginning to show as consumers cut back on spending.

Chancellor Philip Hammond said it was a sign of the "underlying strength" of the economy.

The Office for National Statistics (ONS) said that the figure represents the fastest quarterly growth since the final quarter of 2016, when the economy expanded by 0.7%.

Growth was primarily driven by strong retail sales during the World Cup and a recovery in construction in July, when monthly Gross Domestic Product (GDP) was 0.3% higher.

August and September were both flat, confirming economists’ fears that the heatwave’s boost to the economy faded towards the end of the summer.

Rob Kent-Smith, head of national accounts, said: "The economy saw a strong summer, although longer term economic growth remained subdued. There are some signs of weakness in September with slowing retail sales and a fall back in domestic car purchases.

"However, car manufacture for export grew across the quarter, boosting factory output."

The pound was largely unmoved following the news, trading 0.3% down versus the US dollar at 1.30 and flat against the euro at 1.14.

Growth in construction and manufacturing output picked up in the third quarter following a weak start to the year, when building projects were delayed by adverse weather conditions.

Output in the construction industry was 2.1% higher in the period, the fastest increase since the first quarter of 2017.

Meanwhile, output from the services industries, which include retail, eased to 0.4% compared to 0.6% in the second quarter.

The strength in retail seen earlier in the summer continued into the beginning of the third quarter as consumers snapped up food and drink amid the hot weather and the World Cup. Retail growth slowed to 1.1% in the third quarter, following a 2% rise in the previous period.

Motor trade services fell by 1.9%, the weakest quarterly growth rate since the final quarter of 2012.

But car manufacturing increased, helping to improve the UK’s trade balance.

The total trade deficit narrowed by £3.2 billion to £2.9 billion. Cars had the biggest impact on the balance of goods imports and exports due to a £1 billion rise in non-EU exports and a £1.7 billion fall in EU imports.

Net trade made the largest positive contribution to GDP growth in the third quarter.

Growth figures for the latest quarter meet the expectations of economists as well as the Bank of England’s most recent predictions. The Bank, which last week held interest rates steady, forecast 0.6% GDP growth for the third quarter.

It then expects growth to pare back to 0.3% in the fourth quarter before steadying at 0.4% thereafter. European Commission forecasts released on Thursday show the UK heading for the bottom of the EU growth league in 2019, under-performing every other member state except Italy, which is tied for last place.

The UK is expected to post 1.2% growth next year, compared with the fastest growing country, Malta, which is projected to grow by 4.9%.

This year GDP growth is seen at 1.3%, which will make the UK the third slowest-growing EU member.

The Chancellor of the Exchequer, Philip Hammond, said: “Today’s positive growth of 0.6% is proof of the underlying strength in our economy.

"We are building an economy that works for everyone with 3.3 million more people in work, lower unemployment in every part of the country, and wages rising at their fastest pace in almost a decade.

"Now our focus is on locking in this progress and ensuring people’s wages can continue to rise.

“That is why my Budget supports hardworking families by cutting taxes for 32 million people, provides more funding for public services – including a record-breaking funding increase for our vital NHS – and invests in our future with more money for transport and digital technology.”

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