Household spending rebounds as UK economic growth accelerates

Household spending has rebounded and business investment eked out growth, helping the UK economy pick up pace in the third quarter.

In its second estimate, the Office for National Statistics (ONS) confirmed gross domestic product (GDP) grew by 0.4% between July and September, rising from 0.3% for the first and second quarters.

Consumer spending proved resilient over the period, bouncing back to 0.6% from 0.2% in the second quarter despite the persistent squeeze on household finances from higher inflation and dismal wage growth.

The resurgent performance was driven by new car sales, which had slumped between April and June after people forked out money in the first three months of the year to escape tax changes on high-polluting vehicles.

Business investment also grew in the third quarter, but could only muster up a 0.2% rise to £45.8 billion compared with £45.7 billion for the three months before.

However, figures for Britain’s powerhouse services sector eased to a four-year low of 1.4% during the three months to September compared to last year.

The update comes after Britain’s fiscal watchdog served up gloomier forecasts for GDP growth and the UK public finances in Wednesday’s Budget, slashing the outlook on growth and pencilling in higher Government borrowing.

Rob Kent-Smith, ONS statistician, said: “GDP growth in the third quarter remains similar to that seen in the first half of 2017, with professional activities, which include employment agencies and accountancy, providing the biggest contribution to growth this quarter.

“Household spending strengthened after a weak second quarter.

“Spending on transport, which includes cars, is contributing to growth this quarter, having driven the weakness in quarter two after changes to vehicle excise duty led people to bring forward their car purchases to quarter one.

“Meanwhile, growth in business investment remained positive but subdued in the most recent quarter.”

Britain’s net trade deficit saw its biggest expansion for a year, growing by £2.5 billion during the third quarter, as trade exports fell by 0.7% and imports rose by 1.1%.

John Hawksworth, PwC chief economist, said: “Net trade subtracted significantly from overall GDP growth in the third quarter, but a lot of this was due to erratic movements in trade in oil and non-monetary gold.

“The underlying picture on trade is not as bad as these headline figures suggest, although it is still disappointing that UK export growth has not been stronger given the recovery in the global and eurozone economies over the past year and competitive value of sterling.”

Sterling was down 0.1% against the US dollar at 1.33 and 0.3% lower versus the euro at 1.12 following the announcement.

Howard Archer, EY ITEM Club’s chief economic adviser, said: “Despite the modest pick-up in growth in the third quarter and stronger consumer spending, the outlook for the UK economy currently remains challenging.

“Consumer purchasing power is still being squeezed appreciably while business concerns and uncertainties over Brexit and the economy are hampering investment. Hopefully, net trade can help growth as exports benefit from ongoing healthy global activity and a very competitive pound

“We suspect that the economy will continue to grow in a 0.3%-0.4% vein through the fourth quarter of 2017 and much of 2018. Consequently, we forecast GDP growth at 1.5% in 2017 and 1.4% in 2018.”