ONS confirms weak UK economic growth in third quarter

Britain was confirmed as the slowest growing G7 economy this year as gross domestic product figures were confirmed for the third quarter.

A second estimate of UK GDP on Thursday showed the economy grew 0.4% in the third quarter compared to the second, as was indicated in the initial reading from the Office for National Statistics.

Compared to the third quarter last year, ONS also confirmed GDP was 1.5% higher, again as stated in its initial estimate.

The ONS report came a day after the Chancellor's Budget statement included a newly downgraded forecasts from the Office for Budget Responsibility for GDP to grow 1.5% in 2017 and fall to 1.4% in 2018.

The OBR, which said growth was slowing as "public spending cuts and Brexit-related uncertainty weigh on the economy" with forecasts downgraded due to productivity weakness, forecast GDP to slow even further to a low of 1.3% in 2019 and 2020 before edging back to 1.5% in 2021 and 1.6% in 2022.

For the third quarter of 2017, the ONS revealed UK private consumption picked up to 0.6% in the quarter, which was higher than the 0.4% consensus forecast and up from the previous quarter's 0.2% quarter-on-quarter growth. Government spending was 0.3% higher, as forecast, up from 0.1% before.

Growth in UK total business investment was disappointing at just 0.2% versus a 0.3% consensus and down from 0.5% in the previous quarter. Year-on-year business investment was up 1.8%, which was down from previous quarter's 2.5% but above the 1.4% forecast.

Net trade was shown to have had a negative effect on quarterly GDP growth, down 0.5 percentage points or 0.2 if excluding volatile gold flows.

With surveys of investment intentions remaining robust despite Brexit uncertainty, economist Paul Hollingsworth at Capital Economics noted that recent business surveys were pointing to GDP growth "perhaps even picking up a little bit of pace" in the fourth quarter, and he think that "growth will come in a bit stronger than most think next year".

Contrary to the new OBR forecasts, Hollingsworth predicts GDP growth "could be around 2%" next year.

But Sam Tombs at Pantheon Macroeconomics expect quarter-on-quarter GDP growth to fade to 0.2% in the fourth quarter as households’ spending slows again.

"The squeeze on real wages still has further to run, while the MPC’s rate hike will reduce disposable income and encourage households to save more. We hold out little hope for a revival in net trade or investment in the near-term, given the still-huge uncertainty about the UK trade ties with the rest of the world."

He noted that while households’ real spending growth picked up close to its 0.7% average of the five years to 2016, households were "appearing to fund most of this increase by saving less and/or borrowing more", with the 1.1% rise in nominal spending exceeded the 0.7% rise in the compensation of employees.

Although disappointed by the "dreadful performance" of trade since sterling depreciated in the run-up and post the Brexit vote last year, Tombs took more heart from the investment and business investment figures.

"It’s a relief that capex isn’t falling, but it really should be surging given that borrowing costs are low and profit margins are healthy."