NIESR: Growth will slow in Q4
And finally.... a UK thinktank has predicted that UK growth will slow to 0.4% in the final three months of 2018
The National Institute of Economic and Social Research’s latest GDP tracker predicts that the UK economy expanded by 0.4% in August-October, down from the 0.6% growth racked up in the third quarter.
NIESR also believes the economy will run at a similar rate until the end of 2018, and cautions not to get carried away by the stronger growth this summer.
It says:
- In our view, UK economic growth peaked in the third quarter of this year and will settle at a rate that is close to its post-crisis average in the final quarter.
- According to new ONS statistics published this morning, the UK economy expanded by 0.6 per cent in the third quarter (three months to September) after growing by 0.4 per cent in the second quarter (three months to June). The outturn was slightly lower than the 0.7 per cent monthly GDP forecast that we published last month for the same period and the error is partly because of back data revisions. Building on the official data, our monthly GDP Tracker suggests that the economy will expand by 0.4 in the final quarter of this year.
- The apparent strength in third quarter growth masks a loss in momentum in industrial production as well as services output in the latter part of the third quarter. There are a number of factors at play, including Brexit-related uncertainty.
That’s a good point to wrap up for the day, and the week. Thanks for reading and commenting. We’ll be back next week. GW
Here’s a round-up of how the UK growth figures are being reported:
Reuters: UK economy grows strongly in third quarter, with hints of tougher times ahead
Britain’s economy kept up healthy momentum during the third quarter, but this may prove a high watermark ahead of Brexit, official figures showed on Friday.
Gross domestic product in the three months to September was 0.6 percent higher than in the previous quarter, matching the consensus forecast in a Reuters poll of economists, figures from the Office for National Statistics (ONS) showed.
Compared with a year earlier, the economy stood 1.5 percent larger.
But in September alone, it stagnated for a second month running, compared with forecasts for a rise of 0.1 percent.
Financial Times: UK economy grows at fastest rate since 2016
The UK economy accelerated to its fastest quarterly growth rate in almost two years over the summer but economists warned that with Brexit uncertainties curbing spending, the performance would soon decline.
Daily Telegraph: Strong summer sales fade as economy slows into autumn
Economic growth hit its highest pace since 2016 as GDP surged 0.6pc in the third quarter of the year on stronger manufacturing and construction growth.
Annual growth accelerated to 1.5pc, up from 1.2pc three months ago.
But there are already signs the acceleration has faded, with most of the improvement coming in July and growth petering out by September.
The Times: Sunny summer helped economy to fastest growth for two years
The British economy grew by a perky 0.6 per cent in the third quarter, its fastest for two years, but the positive number was soured by a third successive quarter of falling business investment.
The Office for National Statistics said that the growth in total output compared to the second quarter was the fastest performance since the first quarter of 2016, when the economy surged by 0.7 per cent.
Cheerfulness fuelled by England’s showing in the World Cup and the sunny weather pushed up retail sales and a recovery in construction in July produced a surge in the economy in the first month of the period. August and September were both flat, however, confirming concerns that the impetus has been fading.
Here’s our news story on today’s growth figures:
Andy Scott, associate director at independent financial risk management consultancy JCRA, also fears the UK is now slowing:
“The latest GDP figures show that the unexpectedly hot and sunny Summer has encouraged consumers to spend more on eating and drinking out, while Sterling weakness has helped to boost trade. By contrast, investment contracted sharply, suggesting that companies are preparing for a weaker economy by scaling back on spending, with implications for GDP growth as well as the labour market.
With a Brexit deal still hanging in the balance, we expect the economy to slow in the current quarter, as businesses and consumers brace themselves for the eventuality that no solution is found for the Irish border issue. The overall picture of the UK economy is however, one of resilience. With unemployment at multi-decade lows and wages accelerating, the robust levels of household spending should continue to act as a buffer against weakening sectors such as manufacturing, preventing the economy from stalling or worse, contracting.
It’s official: the government can organise a photo op in a brewery.....
Updated
Here’s the ONS’s take on the growth figures:
Today we’ve released our latest set of #GDP figures for Q3 2018. Commenting on the figures Head of GDP Rob Kent-Smith said: https://t.co/ROsP0NPAsB pic.twitter.com/ALt3kh0oub
— ONS (@ONS) November 9, 2018
UK growth outpaces the eurozone
The UK can claim to have been one of the faster-growing advanced economies this summer.
The eurozone, for example, only expanded by 0.2% in July-September, with Italy not managing any growth at all. Even France, which should have enjoyed its own World Cup boost, only grew by 0.4%.
We get German GDP next Wednesday; some economists fear Europe’s largest economy may have shrunk due to trade war tensions, and a slowdown in its car sector.
Japan is also predicted to have contracted, partly due to earthquake and typhoon disruption.
Britain hasn’t caught up with America’s strong growth, though..
Here’s what we know so far:
-
US: +0.9% quarterly growth in Q3 (or 3.5% on the ‘annualised’ basis used in America)
- UK: +0.6% quarterly growth
-
France: +0.4% quarterly growth
-
Eurozone: +0.2%
- Italy: Stagnation
- Canada: 0.2% growth in July, and 0.1% in August
TUC General Secretary Frances O’Grady has called on the government to help stop the “worrying fall” in business investment.
“The government should set up a National Investment Bank to upgrade Britain’s infrastructure. This would help raise productivity, giving a boost to growth and wages.
Business investment would also benefit from a Brexit deal that doesn’t gum up Britain’s trade links with the EU....
Hammond’s claim that Britain’s economy has ‘underlying strength’ really doesn’t match the steady slide in UK business investment this year.
UK business investment not on a particularly encouraging path, notes Nomura's Jordan Rochester. "Brexit uncertainty is exerting a larger negative influence on business investment as we move closer to a deal/no-deal being confirmed." pic.twitter.com/41odH391XS
— Jamie McGeever (@ReutersJamie) November 9, 2018
Worryingly, third consecutive quarter of drop in business investment (Brexit-related paralysis?) means UK less prepared for thriving in post-Brexit era.
— Dharshini David (@DharshiniDavid) November 9, 2018
Updated
Chancellor: 0.6% growth proves economy's 'underlying strength'
The Chancellor of the Exchequer, Philip Hammond, says today’s growth figures show the UK economy’s underlying strength.
Speaking on a trip to Fuller’s Brewery in London (nice work if you can get it!), the chancellor hailed the GDP report - even though several economists are warning that the economy is slowing.
Hammond says:
“Today’s positive growth of 0.6% is proof of the underlying strength in our economy. We are building an economy that works for everyone with 3.3 million more people in work, lower unemployment in every part of the country, and wages rising at their fastest pace in almost a decade. Now our focus is on locking in this progress and ensuring people’s wages can continue to rise.
“That is why my Budget supports hardworking families by cutting taxes for 32 million people, provides more funding for public services – including a record-breaking funding increase for our vital NHS – and invests in our future with more money for transport and digital technology.”
Updated
The CBI also fears that the UK economy is weakening, despite its sparkling summer.
Their principal economist, Alpesh Paleja, says:
“The sun shone on the UK economy over the summer, boosting economic growth relative to the second quarter.
“But as the impact from the warm weather and World Cup fades, we expect subdued growth ahead. Indeed, our surveys for October already paint a picture of weaker momentum.
Will Hobbs, head of investment strategy at Barclays Smart Investor, is also concerned that storm clouds are gathering over the UK economy:
“We should not be lulled into a false sense of security by a third-quarter that was propped up by a bounce in consumption.
Incoming private sector confidence surveys tell us very clearly that the sky is darkening a little for the UK as the realities of a hard Brexit start to weigh more visibly on short term private sector decision making.
Brexit is clearly to blame for the slide in UK business investment, says analysts at Danke Bank
🇬🇧#UK business investments fell for the third consecutive quarter (for the first time since the financial crisis). 20% of the UK companies think #Brexit is the key source of uncertainty and as many as 50% have postponed investment decisions due to Brexit $EURGBP pic.twitter.com/ibOzya2c1U
— Danske Bank Research (@Danske_Research) November 9, 2018
This pick-up in UK growth won’t last, according to Ana Boata, senior economist at Euler Hermes.
She fears that growth could halve in the current quarter:
“The rebound in UK economic growth in Q3 was triggered by a number of temporary factors including contingency planning in light of the uncertainty on the Brexit deal by March 2019.
“We expect GDP growth to fall to 0.2-0.3% in Q4 as tightening financial conditions, weaker consumer confidence and more fragile business profitability take their toll on the UK economy. The drag on growth from the Brexit related uncertainty will remain and will hinder investment opportunities.
Updated
Here’s confirmation that the sun and the soccer helped drive the UK economy in July.
Solar-powered economy grew by 0.6% between July and September - fastest pace since late 2016. Big bounce in July (world cup and sunshine) but “signs of weakness” in September. Households kept spending as business investment fell. What happens next depends on Brexit. pic.twitter.com/RQgiO9exKE
— Joel Hills (@ITVJoel) November 9, 2018
UK GDP: instant reaction
Few important things to note about today’s GDP figures. First off, on a monthly basis the economy was actually flat in Aug and Sept. Main thing keeping it strong was a) a relatively strong July and base effects rebounding from a weakish Q2 pic.twitter.com/dztAsGElv1
— Ed Conway (@EdConwaySky) November 9, 2018
UK GDP up to 0.6% quarter on quarter in July-September - strongest since Q4 2016. But (and it's a big one), a clear slowdown at end of the quarter, suggesting a weak Q4 on the way.
— Mike Jakeman (@mikejakeman) November 9, 2018
Today's GDP release showed the impact of the slow down in the automotive or car sector as it took 0.11% off GDP growth in September. That was what stopped the Q3 number being 0.7%.
— Shaun Richards (@notayesmansecon) November 9, 2018
The 2.1% rise in ONS construction output in 2018 Q3 compared with Q2 is a rise of £872 million, primarily driven by a £507 million rise in private housing, offsetting the £162 million fall in commercial output.#ukconstruction. pic.twitter.com/0VPxmQfmk9
— Noble Francis (@NobleFrancis) November 9, 2018
U.K. GDP up 0.6 % in three months to September. Construction up after terrible year ago comparable, manufacturing slightly up but services growth slows and business investment drops a huge 1:2%
— siobhan kennedy (@siobhankennedy4) November 9, 2018
Better news: Britain’s exporters helped to drive growth up over the summer.
The ONS says that net trade made the largest positive contribution to GDP growth in the last three months, thanks to a 2.7% rise in exports. Imports were flat.
UK business investment in worst run since the financial crisis
Another blow: business investment fell by 1.2% between Quarter 2 and Quarter 3 2018.
This is the sharpest decline since the first quarter of 2016 and marked the third consecutive quarterly fall – which has not been seen since the global financial crisis, the ONS says.
This is likely to be due to the impact of Brexit uncertainty, as firms are reluctant to commit to new factories and offices until they have more clarity.
Update: here’s the chart:
Updated
On an annual basis, the UK economy grew by 1.5% in July-September.
That’s the best result in a year.
But the ONS isn’t impressed, saying that the UK continued “its relatively subdued performance over the last year.”
UK economy stagnated in September
Oh dear.
Today’s GDP report also shows that the UK economy didn’t post any growth in September, or in August.
Economists had expected GDP to rise by 0.1% in September, so this is a blow. One month’s sizzling growth (thank you July!) isn’t enough.
The ONS says:
Real GDP growth in Quarter 3 was driven by growth of 0.3% in July 2018, which stemmed from strong retail sales boosted by warm weather and the World Cup, as well as a low base reflecting the weaker start to the year.
Month-on-month growth in real GDP has been flat in both August and September 2018.
NEW: UK GDP growth flatlines for the second month in a row in September
— Anna Isaac (@Annaisaac) November 9, 2018
Confirmation that the UK economy just racked up its best quarter since the end of 2016:
All four sectors of the UK economy - services, industry, construction and agriculture - grew in the last quarter.
The ONS says:
All four sectors of output contributed positively to growth in Quarter 3 2018, with the largest contribution from the services industries at 0.3 percentage points.
UK GROWTH FIGURES RELEASED
NEWSFLASH: The UK economy grew by 0.6% in the third quarter of this year.
That’s the fastest growth in a calendar quarter since the last three months of 2016.
That’s up from 0.4% in the second quarter of 2018, the Office for National Statistics says.
More to follow....
Here we go...
UK Q3 GDP next, expected 0.6% y/y and 0.4% q/q
— Ashraf Laidi (@alaidi) November 9, 2018
Today’s growth figures could be the high point of 2018...
Lloyds on UK GDP pic.twitter.com/vdoOcshasA
— RANsquawk (@RANsquawk) November 9, 2018
The prospect of UK growth hitting its highest level since the end of 2016 hasn’t cheered the London stock market.
Shares are down across Europe this morning, as the rally following this week’s US elections fizzles out. This has knocked 0.7% off the Stoxx 600, which tracks the region’s largest companies.
Russ Mould, investment director at AJ Bell, says:
“Just as it looked like the US midterm election results would give a boost to markets around the world, momentum has been quickly lost.
“A falling oil price has troubled investors and shifted their focus back to concerns about a slowdown in global economic growth.”
The Treasury have tweeted a short (and simple) video clip to explain what GDP means:
New growth stats out today at 9.30am.
— HM Treasury (@hmtreasury) November 9, 2018
But, what is GDP and why does it matter? 🤔
Find out in this video👇🏼 pic.twitter.com/XNLXBO1wO1
If today’s third-quarter GDP report is indeed strong, then July can take much of the credit.
A consumer spending surge helped to drive growth at the start of the last quarter, but it is likely to have faded by the end.
As Marc Ostwald of ADM Investor Services puts it:
The story for the UK economy in Q3 was a strong start which had fizzled out almost completely by the end of the quarter, indeed monthly GDP and the Index of Services for September are seen at just 0.1% m/m after flat readings in August.
Q3 Business Investment is projected to rebound modestly to 0.2% q/q, which would be an improvement on Q2’s -0.7% q/q, but is obviously heavily encumbered by Brexit related uncertainties
Introduction: UK summer growth figures expected to sizzle
Good morning.
Britain’s sizzling summer is, alas, behind us. The barbecues have been put away, and World Cup wall charts have been taken down, as the country braces for Storm Deirdre to give us an autumnal blast.
But we’ll always have the memories. And this morning, we discover just how well the economy performed in July-September - and whether Brexit uncertainty and global trade conflicts took the shine off the sizzling summer.
New UK GDP data is expected to show Britain’s economy expanded at its fastest rate in almost two years over the summer, with growth of around 0.6%.
That would be much better than the measly 0.1% growth recorded in Q1, or the 0.4% in Q2.
To be honest, it would be a surprise if today’s GDP reading wasn’t good. Under the UK’s new monthly GDP reporting system, we already know that July was strong (with growth of 0.6% in that month alone).
August seems to have been flat, but growth probably picked up a little in September.
Royal Bank of Canada predict that household spending and building activity boosted growth over the summer:
The good summer weather boosted consumer spending and construction activity.
This first release of quarterly GDP now comes with an expenditure breakdown which we expect to show household consumption and investment being the major contributors to third quarter growth.
Amid a blizzard of data at 9.30am, we’ll also learn how well Britain’s factories and service sector firms and exporters fared in September.
But a strong performance won’t fix all Britain’s economic challenges. The City fears that growth is slowing in the current quarter, as firms slash investment plans ahead of Brexit.
Yesterday the European Commission predicted Britain would tumble to the bottom of the European growth league next year, even after a soft departure from the EU.
The agenda
- 9.30am GMT: UK GDP for the third quarter of 2018
- 9.30am GMT: UK trade balance for September
- 9.30am GMT: UK industrial production for September
- 9.30am GMT: UK index of services for September
Updated
