UK growth to rise in third quarter but summer boost cools off

UK economic growth is expected to have risen in the third quarter, but analysts warned of a drop in output towards the end of the summer.

Economists believe that gross domestic product (GDP) growth climbed to 0.6% between July and September, according to consensus estimates.

It comes after growth rebounded to 0.4% in the second quarter as sunny weather encouraged higher retail sales and construction.

The weather is thought to have continued warming up the economy for the third quarter, but the end of the period is seen rising more slowly as the summer boost wears off.

“Friday’s GDP report likely will fuel concerns the economy has little underlying momentum,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

“Granted, quarter-on-quarter growth probably sped up to 0.6% in Q3 -exceeding the economy’s potential rate – from 0.4% in Q2.

“But this simply reflects a surge in activity in weather-sensitive sectors at the start of the quarter, following weakness earlier in the year.”

Month-on-month growth in September is expected to be 0.1%, reflecting a drop in several key sectors which benefited from the heatwave.

Economists expect monthly construction output to have fallen, based on the most recent industry data.

Builders catching up on work disrupted by the Beast from the East in early 2018 gave August’s numbers a lift, but these projects are expected to be mostly finished.

Meanwhile shoppers spent less on food in September, weighing on retail sales which declined by 0.8%. This is expected to detract from growth in total services output.

Car production also suffered, with the latest data from the Society of Motor Manufacturers and Traders (SMMT) pointing to a decline of 16.8%.

Analysts at Investec noted that growth was flat in August, suggesting the temporary boost in the summer was fading.

“While we would not draw too many firm conclusions from one month of data alone, it does hint that the robust momentum in the economy had begun to ebb a little during the late summer,” they said.

“Furthermore we are not convinced that the situation will have changed materially in September.”

The Bank of England, which last week held interest rates steady, chimed with consensus in its latest forecasts for the economy, predicting that growth accelerated to 0.6% in the third quarter thanks to the summer shopping spree.

But the Bank expects growth to pare back to 0.3% in the fourth quarter before steadying at 0.4% thereafter.

European Commission forecasts released on Thursday show the UK heading for the bottom of the EU growth league in 2019, underperforming every other member state except Italy, which is tied for last place.

The UK is expected to post 1.2% growth next year, compared with the fastest growing country, Malta, which is projected to grow by 4.9%.

This year GDP growth is seen at 1.3%, making the UK the third slowest-growing EU member.

Read Full Story

FROM OUR PARTNERS