United Kingdom: Economy contracts in August, but still set to avoid recession in Q3
According to monthly GDP data released by the Office for National Statistics (ONS), economic activity shrank 0.1% in August over the previous month in seasonally-adjusted terms. While the reading undershot market expectations of a flat reading, economic growth for July was revised up from 0.3% to 0.4%. As a result, the economy is still on course for a mild expansion over Q3 as a whole.
August’s reading was driven by a decline in the manufacturing sector, while the service sector flatlined. Looking at rolling quarterly data, which helps smooth month-to-month volatility, the economy grew 0.3% in June-August, up from revised 0.1% growth in May-July (previously reported: 0.0%).
Looking forward, underlying momentum is seen staying tepid in the near term as Brexit uncertainty hampers investment, notwithstanding some potential temporary volatility in GDP data due to stockpiling. A possible no-deal Brexit is the key risk to the outlook.
As James Smith, an economist at ING comments: “In the short-term, there is some potential for manufacturing to bounce back as stock building activities resume ahead of October 31 – albeit with inventory levels already high and warehousing space scarce, this will be on a much more limited scale than before the original March deadline. Most of this is ultimately noise though, and the broader economic trend remains pretty lacklustre”.