Econ­omy reaches two-year high but shows signs of slow­ing

The Guardian - - FINANCIAL - Richard Part­ing­ton

The UK econ­omy ex­panded at the fastest pace in two years dur­ing the third quar­ter but has be­gun show­ing signs of a slow­down be­fore Brexit as more in­vest­ment de­ci­sions are put on hold.

In what is likely to be a peak for the econ­omy this year, the lat­est snap­shot from the Of­fice for Na­tional Statis­tics (ONS) showed GDP growth in the three months to the end of Septem­ber was 0.6% – the fastest ex­pan­sion since the fi­nal quar­ter of 2016.

But growth has be­gun to fal­ter as the boost to the econ­omy from the warm weather over the sum­mer and Eng­land’s per­for­mance at the World Cup has fiz­zled out. GDP growth flat­lined in Au­gust and Septem­ber, with signs of weak­ness in busi­ness spend­ing, re­tail sales and a fall in do­mes­tic car pur­chases.

City econ­o­mists had fore­cast growth of 0.1% in Septem­ber, but the UK econ­omy un­ex­pect­edly stag­nated for the sec­ond month in a row, as new car reg­is­tra­tions fell by a fifth in the worst Septem­ber for the mo­tor trade in a decade.

Although there are gath­er­ing signs of weak­ness as the coun­try braces for Brexit on 29 March next year, on an an­nual ba­sis the British econ­omy grew by 1.5%.

Philip Ham­mond, the chan­cel­lor, said on a visit to the Fuller’s brew­ery in Lon­don just two weeks af­ter the bud­get that the growth rate was “proof of the un­der­ly­ing strength in our econ­omy”.

There are how­ever mount­ing signs of un­der­ly­ing weak­ness as the prime min­is­ter, Theresa May, strug­gles to agree a Brexit deal with the EU, with busi­ness in­vest­ment drop­ping at the fastest rate since early 2016.

The lat­est fig­ures re­veal a con­trac­tion in cor­po­rate spend­ing of 1.2% dur­ing the third quar­ter, mark­ing the first time busi­ness in­vest­ment has slipped for three con­sec­u­tive quar­ters since the global fi­nan­cial cri­sis a decade ago.

Azad Zan­gana, se­nior Eu­ro­pean econ­o­mist at the City fund man­ager Schroders, said Brexit was among the rea­sons for busi­nesses to de­lay in­vest­ment de­ci­sions. “Although more re­cently those de­lays are turn­ing into can­cel­la­tions, with al­most daily an­nounce­ments of man­u­fac­tur­ing jobs losses and plant clo­sures as firms shift pro­duc­tion out of the UK,” he added.

The largest con­tri­bu­tion to growth in the third quar­ter came from UK ser­vices. Net trade con­trib­uted 0.8 per­cent­age points to GDP growth, with a 2.7% in­crease in ex­ports ver­sus stag­nant growth in im­ports.

Con­struc­tion out­put con­tin­ued to ac­cel­er­ate fol­low­ing a weak start to the year, when freez­ing weather forced cranes and dig­gers across Bri­tain to fall idle. Quar­terly out­put in man­u­fac­tur­ing also rose for the first time in 2018.

With an ex­pan­sion of 0.6% in the third quar­ter, the lat­est fig­ures sug­gest the UK econ­omy grew three times faster than that of the eu­ro­zone, af­ter growth in the bloc dropped to 0.2%.

The Of­fice for Bud­get Re­spon­si­bil­ity es­ti­mates UK growth will drop to 1.3% in 2018 from 1.7% last year – which would make 2018 the worst year for the econ­omy since the re­ces­sion in 2009.

Econ­o­mists said much of the ac­cel­er­a­tion dur­ing the third quar­ter would have come as com­pa­nies and busi­nesses caught up on pur­chases and sales made ear­lier in the year.

Sa­muel Tombs, of Pan­theon Macroe­co­nomics, said: “Two con­sec­u­tive months of stag­na­tion in GDP [Au­gust and Septem­ber] un­der­line that the econ­omy has lit­tle mo­men­tum and that the strong quar­ter-on-quar­ter growth rate sim­ply re­flects the weather-re­lated re­bound.”

PHO­TO­GRAPH: STE­FAN ROUSSEAU/WPA/GETTY

▲ The chan­cel­lor, Philip Ham­mond, tours Fuller’s brew­ery in Lon­don with the head brewer, Ge­orgina Young, be­fore the GDP fig­ures an­nounce­ment

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