UK avoids recession with Q3 rise in growth

A slight but steady increase in GDP during July and September has kept the UK from entering a recession.

The UK avoids a recession with Q3 rise in growth
The UK's services sector led a pick-up in the economy as growth returned in the third quarter of the year, according to official figures released on Monday 11 November.The Office for National Statistics (ONS) reported that GDP increased by 0.3 per cent between July and September, thus avoiding the nation officially entering a recession after a contraction of 0.2 per cent in Q2."GDP grew steadily in the third quarter, mainly thanks to a strong July," says the ONS. "Services again led the way, with construction also performing well. Manufacturing failed to grow as falls in most industries were offset by car production bouncing back following April shutdowns."The underlying trade deficit narrowed, mainly due to growing exports of both goods and services."

Growth in services and construction sectors

While manufacturing output was flat over the quarter, mainly attributed to Brexit uncertainties, both the dominant services sector and construction delivered growth.For the sixth quarter in a row, the information and communication industry proved one of the nation's most successful sectors, recording 0.8 per cent growth in Q3, led by output in film and TV production.
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However, Tej Parikh, chief economist at the Institute of Directors, expressed fears that growth across the economy as a whole could slow in the current quarter. "The UK economy has been in stop-start mode all year, with growth punctuated by the various Brexit deadlines," he says. "Indeed, the pick-up in the third quarter numbers may slightly exaggerate the strength in the economy, with some activity likely to have been brought forward before 31 October. The final quarter of 2019 could be weaker as stockpiles continue to be run down.“While high employment has provided some support for the economy, underlying weaknesses in investment and productivity still need addressing. With uncertainty likely to persist and a continued slowdown in global markets, the onus is on the new government to stimulate economic activity and move the UK beyond its current yo-yo pattern of growth.”

Brexit uncertainty hinders the economy

Suren Thiru, head of economics at the British Chambers of Commerce, says he remains concerned after the data showed the economy shrank slightly in both August and September. "The stronger headline figure masks an alarming loss of momentum through the quarter from a relatively strong July outturn and, therefore, does little to suggest any meaningful improvement in UK’s underlying growth trajectory," he says."Despite the pick-up in growth, a slowing global economy has weakened firms’ cashflow, disrupted supply chains and stifled investment, and is likely to squeeze economic activity in the fourth quarter and beyond, unless action is taken."John Hawksworth, chief economist at PwC, puts much of the blame for economic unsteadiness on the confusion surrounding the UK's exit from the European Union. "Household spending remains the main motor of growth, with a 0.4 per cent rise in the third quarter bolstered by stronger earnings growth," he says."By contrast, business investment was flat, reflecting the continued drag from Brexit-related uncertainty, which looks set to continue into the fourth quarter.”

Read more news and views, from David Sapsted

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