Economic growth surges in third quarter – but the momentum is expected to fade

ECONOMIC growth hit its highest pace since 2016 as GDP surged 0.6pc in the third quarter on stronger manufacturing and construction growth.

Annual growth accelerated to 1.5pc, up from 1.2pc three months ago.

But there are signs the acceleration has faded, with most of the improvement coming in July and growth petering out by September.

“The UK economy shifted up a gear over the summer, but with the sunny weather now behind us and Brexit uncertainty very much in front, we suspect the momentum will fade over the winter,” said economist James Smith at ING. “Expect something closer to 0.3pc quarter-on-quarter growth in the fourth quarter.”

Philip Hammond, the Chancellor, said growth was “proof of the underlying strength in our economy”.

He added unemployment was low across the country and wages were rising at their fastest rate in almost a decade.

Household spending helped drive growth as rising wages and sustained confidence, combined with the World Cup and good weather, encouraged sales. Exports outside the EU rose while imports from the EU fell, the Office for National Statistics said, cutting the quarterly trade deficit by £4bn and boosting GDP. Manufacturing added strong output growth in transport equipment and in metals for construction.

New emissions standards in the car market have affected sales, with a surge in August followed by a slowdown in September, when the rules were implemented.

Construction output was up 2.1pc on the quarter.

Government investment, particularly in defence, and investment in housing helped gross fixed capital formation grow by 0.8pc.

However, business investment dropped by 1.2pc from the second quarter to the third, marking the third consecutive quarter of contraction. The figures follow surveys that have suggested political uncertainty was weighing on investment plans.

Other international factors may also have weighed on investment and businesses’ sense of optimism. The trade war between the world’s two largest economies, the US and China, has been adding to the costs of raw materials for manufacturers.

Howard Archer, of EY Item Club, said GDP growth would “improve” thanks to “firmer business investment” as the expected UK-EU transition arrangement takes hold.

Suren Thiru, at the British Chambers of Commerce, said that some measures in the Budget, such as the increase in the annual investment allowance, “should provide a lift to investment over the near term”.