A preliminary estimate of the fortunes of the UK economy in the third quarter of the year has just been released by the Office for National Statistics. It will be subject to two revisions as more comprehensive data sets become available; this reading is based on roughly 44% of the quarterly data.
In Q2, the UK economy managed 0.7% growth and it had been anticipated that Q3 would see a slight reduction in this pace of expansion to 0.6%, but in the event, the figures have come in below analysts’ expectations at 0.5%. This suggests that whilst the economy is still expanding, the rate of expansion has been easing – a slowdown.
The main driver for the UK economy is its service sector and the good news is that it picked up from 0.6 to 0.7% between Q2 and Q3, but the drag on the economy was construction, which fell by 2.2%; manufacturing which contracted by 0.3%; and overall production which slipped from 0.7% to 0.3%. The decline in the construction sector is the sharpest seen in three years. The ONS did comment that a particularly wet August may have, erm, dampened construction activity somewhat.
The economic result is probably going to further delay any increase in the UK Bank of England interest rates which many thought would move off the 0.5% level where it has sat since March 2009, by the end of this year. With economic growth slowing and inflation well below the target 2% value, there would seem to be no incentive to start the lengthy process of interest rate normalisation just yet.
Commenting on the data, Chris Williamson, chief economist at Markit noted: “The slowdown is being led by the manufacturing sector, which is seeing a renewed recession as output has now fallen for three consecutive quarters, suffering a 0.3% decline in the three months to September. Manufacturing output has so far fallen 0.9% this year. Producers are struggling as weak demand in many overseas markets, notably China and other emerging nations, is being exacerbated by the appreciation of sterling.”
Sterling lost a little ground against other major currencies following release of the Q3 data.