United Kingdom: Economy moderates in Q3 thanks to deteriorating external sector
November 27, 2015
In the third quarter, GDP expanded a seasonally-adjusted 0.5% over the previous quarter, according to the second release of Q3 national accounts by the Office for National Statistics (ONS) on 27 November. The print was in line with the ONS’s first release and was expected by market analysts. The recent data indicates a modest deceleration from last quarter’s 0.7% increase. According to the OHS, domestic demand came to the rescue of the UK economy, picking up the slack of a deteriorating external sector.
Private and government consumption kept the economy afloat in Q3, as growth in domestic demand registered a 1.8% increase in Q3, a staggering improvement from the 0.4% contraction recorded in Q2. Government consumption observed a particularly noteworthy increase of 1.3% in Q3, up from the 0.4% increase observed in Q2. This relatively strong figure comes in spite of a backdrop of increased fiscal tightening. Private consumption moderated slightly in Q3, falling from a 0.9% rise in Q2 to a 0.7% increase.
The external sector’s contribution to growth swung from plus 1.4 percentage points in Q2 to minus 1.5 percentage points in Q3. Global headwinds have been dragging on trade in developed economies, as exporters in the UK are beginning to feel the strain from the high value of the pound and a weakening of demand for imports in developing economies. Growth in exports fell to 0.9% in Q3 (Q2 +1.9% quarter-on-quarter) while growth in imports surged to 5.5% (Q2: -2.7% qoq) due in part to the strong pound.
In annual terms, GDP grew 2.3% in the third quarter, which was in line with the ONS’s initial estimate. The figure marked a slight deceleration over the 2.4% increase seen in the second quarter.
Author: Dirina Mançellari, Senior Economist