Economy grew by 0.4% in third quarter but household spending slows
The Office for National Statistics confirmed that gross domestic product grew by 0.4% in its final reading for July to September this year.
Britain’s economic growth nudged up in the third quarter, but household spending grew at the slowest pace since 2012 as inflationary pressures continue to weigh on hard pressed consumers.
The Office for National Statistics (ONS) confirmed that gross domestic product (GDP) grew by 0.4% in its final reading for July to September this year.
The figure is an improvement on the 0.3% recorded in the first and second quarters.
However, the UK economy is still struggling to bounce back to levels seen in the final quarter of 2016 – when GDP rose by 0.6%.
The ONS said that the underlying story is one of a “slowdown in growth”, with annual household spending rising by just 1%, the lowest rate since 2012.
It comes amid a squeeze on consumer finances from higher inflation, triggered by the Brexit induced collapse in the pound, and dismal wage growth.
Business investment grew at 0.5% and, on an annual basis, GDP expanded by 1.7% in the third quarter, an upward revision from 1.5%.
The ONS’s head of National Accounts Darren Morgan said: “Today’s unrevised third quarter figures show most of the growth came from the dominant service sector, with accounting, recruitment agencies and retailing all performing well.
“Manufacturing also boosted growth thanks to an increase in exports and the introduction of new car models. Meanwhile, household spending and business investment both grew steadily.”
The figures come just days after the International Monetary Fund (IMF) cut its outlook for UK economic growth and said the Government may be forced to make deeper spending cuts following the impact of Brexit.
In its annual review of the UK economy, the IMF said GDP looked set to expand by 1.6% this year, knocking back its prediction of 1.7% growth from October.
Howard Archer, EY ITEM Club’s chief economic adviser, said: “The UK economy was confirmed picking up a little speed in the third quarter but it was still no more than in the middle lane.”
Britain’s powerhouse services sector, which accounts for around 79% of the UK economy, grew by 0.4% during the third quarter.
The ONS also revealed that household disposable incomes grew by 0.2%, which compares to growth of 2.3% in the second quarter.
The household saving ratio also fell, from 5.6% to 5.2% as consumers dipped into their savings.
UK Q3 #GDP details show that households financed most of the 0.5%q/q rise in spending by reducing their saving rate further. The decline in consumer confidence in Q4, however, suggests consumers won't continue to throw caution to the wind. pic.twitter.com/l2PiKXU4FC— Samuel Tombs (@samueltombs) December 22, 2017
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The deterioration in consumers’ confidence in the second half of this year suggests that households won’t continue to throw caution to the wind.
“So, with consumers set to struggle with a further fall in real wages, more austerity measures and rising borrowing costs, growth in households’ spending must slow over the coming quarters.”
Separately, the ONS released figures showing Britain’s current account deficit coming in at 4.5% of GDP.
The deficit stood at £22.8 billion compared with economists’ forecasts of 21.4 billion and down from £25.8 billion in the second quarter.