UK economy defies gloomy forecast as GDP edges higher

Growth of 0.4% in third quarter But economists still expect fall in 2018

Britain’s economic growth was better than expected in the third quarter although household spending grew at the slowest pace since 2012 as inflationary pressures took their toll.

The Office for National Sta‑ tistics (ONS) confirmed yester‑ day that gross domestic prod‑ uct (GDP) grew by 0.4 per cent in its final reading for July to September this year.

The figure is an improve‑ ment on the 0.3 per cent recorded in the first and sec‑ ond quarters. Most of the third quarter figures growth came from the dominant service sector, with account‑ ing, recruitment agencies and retailing all performing well. Manufacturing also boosted growth thanks to an increase in exports and the introduc‑ tion of new car models.

However, the UK economy is still struggling to bounce back to levels which had been seen in the final quarter of 2016 when GDP rose by 0.6 per cent. The ONS said that the under‑ lying story is one of a “slow‑ down in growth”, with annual household spending rising by just 1 per cent, the lowest rate since 2012.

Dr Howard Archer, chief economic advisor to EY ITEM Club, said the figures lifted his forecast for GDP growth in 2017 as a whole by 0.1 per cent to 1.7 per cent but growth next year is still expected to be 1.5 per cent.

“Economic activity is likely to be hampered during much of the year by still significant Brexit uncertainties which will likely limit investment, in particular. Domestic political uncertainties may also weigh down on business sentiment and behaviour,” he cautioned.

The lacklustre rise in house‑ hold spending came amid a squeeze on consumer financ‑ es from higher inflation, trig‑ gered by the Brexit induced collapse in the pound, and dis‑ mal wage growth.

The ONS also revealed that household disposable incomes grew by 0.2 per cent, which compares to growth of 2.3 per cent in Q2. The house‑ hold saving ratio also fell, from 5.6 per cent to 5.2 per cent as consumers dipped into their savings.

Samuel Tombs, chief UK economist at Pantheon Mac‑ roeconomics, said: “House‑ holds’ real disposable incomes rose by just 0.2 per cent quar‑ ter‑on‑quarter in quarter three.

“The deterioration in con‑ sumers’ confidence in the sec‑ ond half of this year suggests that households won’t con‑ tinue to throw caution to the wind.

“With consumers set to struggle with a further fall in real wages, more austerity measures and rising borrow‑ ing costs, growth in house‑ holds’ spending must slow over the coming quarters.”

The figures come days after the International Monetary Fund cut its outlook for UK economic growth and said the UK government may be forced to make deeper spending cuts following the impact of Brexit.

In its annual review of the UK economy, it said GDP looked set to expand by 1.6 per cent this year, down from its Octo‑ ber prediction of 1.7 per cent.

businessdesk@scotsman.com