United Kingdom GDP Q3 2018

United Kingdom

United Kingdom: The economy performs well in Q3, but the good times are unlikely to last

November 9, 2018

Growth accelerated in the third quarter of 2018, according to preliminary data released by the Office for National Statistics (ONS) on 9 November. Quarter-on-quarter growth came in at 0.6%, up from 0.4% in Q2 and matching market expectations. In annual terms, the economy grew 1.5% in the third quarter, up from Q2’s 1.2% increase.

On a GDP-by-production basis, the construction sector strengthened, largely due to more favorable weather conditions and a supportive base effect, while the manufacturing sector rebounded from a contraction in Q2, on greater output of motor vehicles. In contrast, growth in the service sector dipped—despite remining robust—on a smaller expansion in the wholesale and retail sales sub-sector following a stellar second quarter.

In terms of expenditure, private consumption grew a solid 0.5% qoq (Q2: +0.3% qoq), likely supported by faster real wage growth. Government consumption expanded 0.6%, contrasting Q2’s 0.4% contraction. Meanwhile, fixed investment swung from a 0.5% decline in Q2 to a 0.8% expansion in the third quarter. However, the recovery in fixed investment was driven by stronger public investment, as business investment declined for the third consecutive quarter for the first time since the financial crisis in 2008. According to economists at Berenberg, “annual growth in UK private business investment averaged 4.9% in the five years before the Brexit vote. Since then, the growth rate has averaged a dismal 1.3%”.

The external sector contributed to growth in the third quarter. Exports rose 2.7% in the third quarter, contrasting Q2’s 2.2% decline and driven by greater goods exports. Imports, meanwhile, were flat quarter-on-quarter (Q2: -0.2% qoq). As a result, the external sector contributed 0.8 percentage points to growth.

The economy is unlikely to maintain this solid momentum in the fourth quarter, as Brexit uncertainty mounts. As James Smith, developed markets economist at ING, comments: “A greater number of firms are likely to enact contingency plans, and at the very least, this is likely to see investment and hiring slow further.” Looking to 2019, the outlook hinges on the evolution of Brexit negotiations. An orderly withdrawal would likely be a boon for fixed investment as firms enact delayed investment plans. On the flipside, leaving the EU without a deal would likely cause considerable economic disruption in the short term.”

UK GDP Forecast

In its November inflation report, the Central Bank stated it expects the economy to expand 1.7% in 2019 and 2020. FocusEconomics panelists take a less optimistic view, projecting GDP will expand 1.4% in 2019 and 1.5% in 2020.

Author:, Economist

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United Kingdom GDP Chart

UnitedKingdom GDP Q3  2018

Note: Quarter-on-quarter changes of seasonally adjusted GDP and year-on-year variation in %.
Source: Office for National Statistics (ONS) and FocusEconomics Consensus Forecast.

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