Inflation, Brexit hold back UK economy

Apicture of inflationsqueezed consumers and Brexit-wary companies emerged in the UK’s latest overview of its economy.

Annual growth in the third quarter slowed to 1.7 per cent, slightly higher than previously estimated but still the weakest pace in 4 1/2 years, the Office for National Statistics said yesterday. The economy expanded an unrevised 0.4 per cent from the second quarter, well below the rates seen before the European Union referendum 18 months ago.

Separate figures showed the dominant services industry, which provided almost all of the economy’s growth in the third quarter, rose 0.2 per cent in October. Taken together with a mildly positive manufacturing performance in the month, it suggests the economy has been steady this quarter as the Bank of England raised interest rates for the first time in a decade last month.

Bloomberg Economics estimates the economy will maintain its pace this quarter, expanding 0.4 per cent. But it says there’s no reason for the central bank to rush though with more tightening.

“Similar gains are likely over 2018 but they won’t be fast enough to put a rocket under the dormant wage growth figures,” said BE’s Dan Hanson. “Headline inflation falling back, together with weak underlying cost pressure, should stay the BOE’s hand next year.”

The economy, which lost momentum in 2017, will probably expand 1.5 per cent this year and 1.4 per cent in 2018, according to a Bloomberg survey.