The UK economy expanded by 0.4 per cent in the third quarter of this year, new early estimates from the Office for National Statistics show, a shade above the previous quarter’s reading and also ahead of forecasts.
The result brings the year-on-year growth rate to 1.5 per cent, in line with the previous quarter and also a nose ahead of forecasts. It will likely embolden the Bank of England to raise interest rates next month.
The ONS pointed out that service sector growth remained 0.4 per cent in the quarter, while manufacturing grew by 1 per cent, bouncing back from a weak second quarter of the year. “Construction has contracted for the second quarter in a row, although the industry still remains well above its pre-downturn peak,” the ONS said.
The data pushed sterling higher, forming a 0.2 per cent gain on the day to $1.3160, though that was still well within in the previous day’s range.
Chancellor Philip Hammond said “we have a successful and resilient economy”.
Sam Tombs, an economist at Pantheon Macroeconomics, said:
The pickup in GDP growth in Q3 gives the MPC the green light to raise interest rates next week, but it is unlikely that a conventional tightening cycle is about to begin.
Growth is liable to slow again over the next couple of quarters. Real household disposable incomes still have further to fall in the near-term as retailers push through further sterling-related price rises. The lack of substantial progress in Brexit negotiations means that more firms will start to activate contingency plans and delay investment. The economy also will be hit next year by a re-intensification of the fiscal squeeze and a sharp rise in borrowing costs when the Term Funding Scheme is wound-up in February. As a result, we think it could be another 12 months from November before the economy is strong enough for the MPC to raise interest rates a second time.
Kallum Pickering at Berenberg writes:
The current pace of UK GDP growth is OK, but it could be better.
While the short-term risks to demand since the Brexit vote have not materialised in a serious way, the UK economy should be riding high on the back of the on-going global upswing. Uncertainty from Brexit is weighing on firm and household confidence. As neighbouring Eurozone growth accelerates to a decade high of 2.2% this year, UK growth looks set to slow to a modest 1.6% – well below its pre-Brexit potential rate of 2.2%. After managing one of the strongest post-Lehman recoveries of all advanced economies, the UK growth rate would probably be nearer 2.5% this year if it weren’t for Brexit.
The full release from the ONS is here.