GDP grows 0.7pc but slows in Au­gust

Sum­mer spend­ing spree shows signs of cool­ing as dom­i­nant ser­vices sec­tor con­tracts in the month

The Daily Telegraph - Business - - Business - By Anna Isaac

SALES of food, drink and cars drove a re­bound in GDP growth over the sum­mer, but a slow­down in Au­gust left economists ques­tion­ing the un­der­ly­ing strength of the econ­omy.

The warm weather lifted con­sumer spend­ing and pow­ered 0.7pc growth in the three months to Au­gust.

The Of­fice for Na­tional Sta­tis­tics (ONS) re­vised up the level of growth in June and July by 0.1 per­cent­age points to 0.2pc and 0.4pc re­spec­tively. How­ever, in the month of Au­gust alone, the econ­omy flat­lined, with zero growth in the coun­try’s gi­ant ser­vices sec­tor cou­pled with a con­trac­tion in the con­struc- tion in­dus­try.

The ser­vice in­dus­try, which ac­counts for nearly 80pc of the econ­omy, was boosted by sales of ac­com­mo­da­tion and food ser­vices in July. But these ac­tiv­i­ties shrank by 1.6pc in Au­gust – a drop-off that was off­set by a one-off im­pact of a rise in mo­tor sales of 1.7pc, ac­cord­ing to the ONS. New tougher emis­sions reg­u­la­tions, in­tro­duced in Septem­ber, meant cars were sold at knock-down prices in Au­gust.

This in­creased sales in what is tra­di­tion­ally a quiet month for the sec­tor, as new num­ber plates are in­tro­duced each Septem­ber.

The ONS fig­ures tally with other, more re­cent data, which have pointed to signs of slow­ing growth in the ser­vices sec­tor. In Septem­ber the closely watched pur­chas­ing man­agers’ in­dex re­ported a score of 53.9 in its sur­veys of busi­nesses. Any score above 50 in­di­cates ex­pan­sion, but the read­ing was be­low the long-run aver­age of 55, sug­gest­ing the sec­tor may be cool­ing off.

GDP grew by 1.5pc year on year to Au­gust, down from 1.7pc for the same mea­sure in July. Mean­while the con­struc­tion sec­tor shrank by 0.7pc in Au­gust com­pared to July. The in­dus­try slumped ear­lier in the year, in part due to the ex­tremely cold weather as­so­ci­ated with the Beast from the East, only to re­cover dur­ing the sum­mer. On a three-month ba­sis to the end of Au­gust, the sec­tor grew 2.9pc.

Rob Kent-Smith, of the ONS, said: “The econ­omy con­tin­ued to re­bound strongly af­ter a weak spring, with re­tail, food and drink pro­duc­tion and house­build­ing all per­form­ing par­tic­u­larly well dur­ing the hot sum­mer months.” Long-term growth “con­tin­ues to lag be­hind its his­tor­i­cal trend”, Mr Kent-Smith said.

John Hawksworth, of PwC, said that the un­der­ly­ing trend for UK growth was “mod­er­ate” at a likely rate of 1.5pc per an­num. Mr Hawksworth added: “This is some­what be­low its longer term trend rate of around 2pc and re­flects the con­tin­ued drag on busi­ness in­vest­ment in par­tic­u­lar from Brexit-re­lated un­cer­tainty.”

The fig­ures came af­ter the In­ter­na­tional Mone­tary Fund warned that global eco­nomic con­di­tions were wors­en­ing due to the trade war be­tween the US and China.

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