UK Economy Grows at Fastest Pace in Nearly 2 Years

The British economy grew by 0.6 percent on quarter in the three months to September 2018, following a 0.4 percent expansion in the previous period and matching market expectations, a preliminary estimate showed. It was the strongest growth rate since the last quarter of 2016 as household spending and exports rose firmly while business investment contracted at the fastest pace since early 2016 in part due to Brexit-related economic and political uncertainty.

Household consumption growth picked up to 0.5 percent in the third quarter from 0.4 percent in the previous three-month period. While the increase in Quarter 3 reflected growth across most categories of expenditure, there was a notably sharp drop in household spending on transport. In addition, government spending rebounded 0.6 percent after a 0.4 percent drop in the previous period; and net external demand contributed positively to the GDP growth as the trade deficit narrowed sharply to £1.655 billion from £5.659 billion in the previous period. Exports of goods and services jumped 2.7 percent (vs -2.2 percent in Q2) while imports were flat (vs -0.2 percent in Q2).

Meanwhile, the largest negative contribution to growth in Quarter 3 came from gross capital formation (GCF) – which includes gross fixed capital formation (GFCF), changes in inventories and acquisitions less disposal of valuables – subtracting 0.6 percentage points. However, this largely reflects the application of an alignment adjustment (used to balance the three approaches to measuring GDP) to the changes in inventories component. Still, GFCF rose 0.8 percent in the third quarter driven by a strong increase in government investment (8.6 percent), which was the strongest seen since Q1 2014 and reflects broad expenditure growth across central government, most notable in defence. The rises in government and private dwelling investment were partially offset by a 1.2 percent decrease in business investment in Quarter 3. This was the sharpest decline since Q1 2016 and marked the third consecutive quarterly fall – which has not been seen since the global financial crisis. 

"However, today’s figures should be interpreted with some caution as early estimates of business investment can be prone to revision. The recent subdued business investment environment is consistent with external surveys of investment intentions, which attribute much of the weakness to Brexit-related economic and political uncertainty. The uncertainty appears to be deepening recently, with the latest Bank of England’s (BoE) November Inflation Report noting that Brexit and associated uncertainty “may have weighed on investment by more than had been expected in August”. The BoE’s Agents’ summary survey for Quarter 3 further indicated that Brexit uncertainty was the single largest factor weighing on firms’ investment spending plans. These sentiments are echoed in the latest Confederation of British Industry’s (CBI) Industrial Trends Survey (ITS) for the three months to October, which saw planned capital expenditure on plant and machinery for the year ahead fall at its fastest pace since July 2009." the Office for National Statistics said.

From the production side, construction output growth continued to pick up following a weak start to the year, while quarterly output in the manufacturing sector rose for the first time in 2018. Growth in services output slowed to 0.4 percent, but remained the largest positive contributor to GDP growth in the third quarter.

UK Economy Grows at Fastest Pace in Nearly 2 Years

ONS | Joana Ferreira |
11/9/2018 10:40:13 AM