GDP grows 0.7pc but slows in August
Summer spending spree shows signs of cooling as dominant services sector contracts in the month
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.