Business

UK GDP growth hits near two-year high, but summer boost cools off

UK economic growth is expected to have risen in the third quarter, but analysts warned of a drop in output towards the end of the summer.
UK economic growth is expected to have risen in the third quarter, but analysts warned of a drop in output towards the end of the summer. UK economic growth is expected to have risen in the third quarter, but analysts warned of a drop in output towards the end of the summer.

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

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 per cent.

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 per cent 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."

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 per cent 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 per cent compared to 0.6 per cent 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 per cent in the third quarter, following a 2 per cent rise in the previous period.

Motor trade services fell by 1.9 per cent, 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 £1bn rise in non-EU exports and a £1.7bn 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 per cent GDP growth for the third quarter.

It then expects growth to fall back to 0.3 per cent in the fourth quarter before steadying at 0.4 per cent thereafter.

Analysts said the strong quarterly growth masked an underlying weakness in the UK economy.

Will Hobbs, head of investment strategy at Barclays Smart Investor, said: "We should not be lulled into a false sense of security by a Q3 that was propped up by a bounce in consumption.

"Incoming private sector confidence surveys tell us very clearly that the sky is darkening a little for the UK as the realities of a hard Brexit start to weigh more visibly on short term private sector decision making."