Business news - GDP: what the economists say

UK trade Third-quarter growth was reliant on services and household spending, the data shows, while investment and exports fell. Economists give their verdict. Cargo at Felixstowe, Suffolk
  The UK economy grew by 0.7% in the third quarter, the Office for National Statistics confirmed in its second estimate of GDP. However, a breakdown of the data showed the recovery remains reliant on services and household spending, while business investment and exports fell. Economists give their view.

Paul Hollingsworth, Capital Economics

Thanks to the easing of the real pay squeeze and strong jobs growth, household spending rose by 0.8% in real terms – the strongest rate since Q2 2010 – and by 1.1% in nominal terms. Since the compensation of employees rose by a robust 1.2%, the rise in spending is likely to have been fully funded and not driven by households saving less. Accordingly, the foundations on which the consumer recovery is built appear more sustainable than a year ago, when lower saving drove growth.
What’s more, overall investment remained fairly strong, rising by a quarterly 1% in Q3, following a 1.3% rise in Q2. However, the one piece of the puzzle still missing is a rebalancing towards the external sector. Indeed, net trade provided a 0.5 percentage-point drag on GDP growth in Q3, suggesting that sterling’s strength and the weakness of overseas demand is still weighing on exports, while growth in import-intensive sectors is feeding through into a pick-up in imports.

David Kern, British Chambers of Commerce

These figures confirm that the UK’s recovery remains on track. Although the pace of growth slowed compared to Q2, it is pleasing to see annual growth at 3.0%. Yet there are some points of concern in the detail; in particular, the slight fall in business investment is disappointing, although annual figures still show strong growth of 6.3%.
However, the most concerning aspect of these figures is the widening trade deficit, as exports fell and imports rose. Our exporters are facing serious challenges abroad, so now is the time to invest even more in supporting and promoting international trade, particularly outside the eurozone. We expect the chancellor to address the UK’s trade deficit in next week’s autumn statement.

Lee Hopley, manufacturers’ trade body EEF

While business investment posted a bit of a dip, this isn’t yet cause for concern as surveys of intentions across the private sector seem to be holding. The drag from net trade is, however, providing a bigger challenge to rebalancing ambitions. Next week’s autumn statement needs to ensure that the business environment for companies planning to invest, recruit and get into new markets is a target for further action from the chancellor.

Howard Archer, IHS Global Insight

While the overall growth performance still looked healthy in the third quarter, the growth mix on the expenditure side of the economy was somewhat unbalanced and disappointing. Growth was heavily dependent on consumer spending (up 0.8% quarter-on-quarter) while there were also significant positive contributions from government spending and higher inventories, which are not sustainable.
While the drop in business investment could be just companies taking a breather after very strong growth over the previous four quarters, it may also be a sign that companies are adopting a more cautious approach in the face of increased global growth concerns (particularly weakness in the eurozone) and mounting political uncertainty in the UK as the 2015 general election looms. It is important for both balanced, sustainable UK growth and for improving productivity that business investment holds up well going forward.

Chris Williamson, Markit

Business investment fell 0.7%, dropping for the first time in over a year. The data is volatile and subject to revision, and with the decline coming after a 3.3% rise in the second quarter it is perhaps too early to get too worried about a downturn in business investment. However, the downturn in business investment is nevertheless a disappointment and corresponds with recent survey evidence showing firms’ optimism about the year ahead ebbing to its lowest since mid-2013. Companies have grown increasingly worried about deteriorating economic conditions in the eurozone as well as geopolitical uncertainties linked to the crises in Ukraine and the Middle East, while closer to home the main concern is uncertainty arising from the general election next year and how government policy may consequently change.
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