UK Economic Growth May Have Accelerated In Third Quarter - Economists

Both manufacturing and construction industries showed signs of life in August while recent data has shown wages and consumer spending more resilient than first thought. 

The UK economy may have gathered pace in the third quarter, according to economists, after a flurry of data released at the beginning of the new week showed consumers and industrial firms on a sounder footing than was previously thought.

Manufacturing output rose at a faster than expected pace of 0.4% during August, according to Office for National Statistics data released Tuesday, while the construction industry saw output grow against the odds thanks to a resilient housing market.

The data were partially overshadowed by a widening trade deficit but nonetheless, left one economist sure in his forecast that, at the very least, the economy is unlikely to have slowed further during the third quarter.

“The deluge of official data for August provided some reassurances that the economy has not lost pace in the third quarter and suggested that growth could even nudge up a touch,” says Paul Hollingsworth, an economist at Capital Economics, in response to the morning’s numbers.

Also on Tuesday, the monthly National Institute of Economic and Social Research (NIESR) estimate of GDP growth showed the economy rounding off the third quarter on a much more stable footing than that on which it began.

NIESR estimates the economy grew by 0.4% during the three months to the end of September, for the second month running, adding weight to expectations the economy may have gained on the meagre 0.3% expansion seen in the second quarter.

“Looking ahead, we expect the pattern of demand in the UK economy to rebalance towards international trade in response to strengthening global growth and weaker sterling and away from domestic demand,” says Amit Kara, head of UK macroeconomic forecasting at NIESR.

Resilient Wages And Consumer Spending  

Tuesday’s data came closely on the heels of a British Retail Consortium report that showed consumer spending holding up well in September.

Like-for-Like sales at retailers grew by 1.9% during September, according to the BRC, the fastest rate of growth since April and second best number since January 2016.

“September saw a second consecutive month of relatively good sales growth which should indicate welcome news for retailers and the economy alike,” says Helen Dickinson, CEO of the BRC.

Food and clothing saw a particularly strong performance during the month although Dickinson notes that much of the increase in sales is due to belated price increases from retailers.

“Online has been the biggest beneficiary of the resilience in consumer spending capacity in the last two months, sustaining a return to double digit year on year growth figures as shoppers responded well to discounts and the ongoing investment by retailers in improving the mobile shopping experience,” Dickinson notes.

In another possible boost for the economy, the ONS issued a correction to earlier data on Monday, acknowledging that it may have understated the true rate of unit labour cost growth in the second quarter.

Errors in calculation meant the 1.6% growth in unit labour costs seen during the second quarter was understated and that employment costs actually rose by 2.4% during the period, which has positive implications for household income growth.

“Stronger than expected unit labour cost growth and the recent material upward revision to the household savings rate has highlighted that the UK consumer is in better health than feared, which should help to ease concerns over a sharper economic slowdown in the year ahead,” says Lee Hardman, a currency analyst with MUFG.