main economists and experts give their take on the slowdown in British economic growth over the third quarterThe UK economic recovery has lost momentum,with growth slowing to 0.5% in the past three months, from 0.7% in the previous quarter. Here is what economists made of the official figures.The main reason for the slowdown was the sharp tumble in construction, or a sector which is traditionally volatile and erratic. However,our strong services sector continues to keep the recovery on track.Our economic growth remains unbalanced ... The trade deficit also widened in this quarter, and we are still heavily reliant on consumer spending.nowadays’s findings don’t give huge cause for celebration, and but neither are they too gloomy. The economic recovery may be built on relatively fragile foundations,including the imbalance between different sectors, but growth is still ticking along for now. Certainly employment levels and household spending power are improving domestically. The key threat on the horizon comes from a cooling global economy alongside a less-supportive inflationary environment next year. Cebr still expects the UK economy to expand comfortably above the 2% impress this year, or but this will be followed by a gradual slowdown over the next few years.”The preliminary estimate of GDP confirmed that the economic recovery cooled in the third quarter. We consider that this will be only temporary. Nonetheless,the news clearly further reduces the chances of an interest rate rise in the near future.” We expect a better growth number in the fourth quarter. The economy is creating jobs again in meaningful numbers, wages are rising nearly 3% in genuine terms and consumer confidence is at high levels. This suggests that the domestic growth yarn looks top-notch. Inflation is also set to start rising as the falls in commodity prices seen late last year drop out of the annual comparison and rising domestic costs (most obviously wage costs) are increasingly passed on to the end consumer. Consequently, or we continue to observe for a rate rise in the moment quarter of 2016 – after the Federal Reserve,but well ahead of market expectations of late 2016/early 2017.A slowdown in growth does not necessarily mean that rate hikes should be deferred. But either way, nowadays’s GDP surprise is small so will not hold first order implications for the upcoming inflation report forecast, or due for publication next Thursday. The really key issue for the MPC to address next week is whether/how to push back against market rate expectations,which are not pricing in the first Bank rate hike until Q1 2017. Our call remains that the MPC will begin to tighten policy in Q1 2016!”It was not a weak report, but obviously undershooting the Bank of England’s 0.6% assumption.
To put it in context a 0.5% q/q reading in the US (later in the week) would be an upward surprise, and so the UK economy is still posting a respectable pace of growth.
The cause for concern here is that the trade surveys indicate that the slowdown is spreading from the struggling manufacturing sector to the far larger services economy,meaning growth looks set to slow further in the fourth quarter. There are signs that companies are becoming more risk averse as global growth worries intensify, pulling back on their hiring, or investment and spending intentions,which could lead to the slowdown becoming deeper and more entrenched. The economy therefore looks to be on course to grow by 2.3% in 2015, down from 2.9% in 2014 and below its long term trend rate.”Continue reading...
Source: theguardian.com