UK GDP growth hits two-year high but slowdown expected next year

The UK economy has grown at its quickest rate for nearly two years in the third quarter (Q3) of 2018, according to the Office of National Statistics (ONS).

Gross domestic product (GDP) growth in the UK in Q3 stood at 0.6%, representing the fastest the economy has expanded since the fourth quarter of 2016, the ONS said.

However, the economy was boosted by the summer heatwave and a strong performance by England in the FIFA World Cup, which drove consumer spending.

In August and September GDP growth remained flat, with significant signs of weakness in retail sales and car purchases.

Car production slows as demand weakens

The longer-term weakness in car production in part reflects softer growth in domestic demand, at a time when household real incomes have been squeezed, the ONS said.

The weakness in car production is broadly consistent with the latest data from the Society of Motor Manufacturers and Traders (SMMT), which noted a 16.8% fall in UK car manufacturing in September 2018 compared with the same period in 2017.

The SMMT attributed the slowdown to a ‘turbulent first three quarters as global trade tensions, model changes and uncertainty over diesel and Brexit were exacerbated by testing backlogs due to new emissions regulations’.

Brexit uncertainty

Thresa May continues to struggle in her attempts to secure a Brexit deal for Britain, which has led to companies pulling back on investment due to uncertainty.

The uncertainty appears to be deepening recently, with the latest Bank of England’s (BoE) November Inflation Report noting that Brexit and associated uncertainty ‘may have weighed on investment by more than had been expected in August’.

‘The economy saw a strong summer, although longer term economic growth remained subdued,’ Head of National Accounts at the ONS Rob Kent-Smith said.