UK GDP growth slows to 0.5% in Q3

28 Oct 2015


The UK economy has expanded at a less than anticipated rate of 0.5 per cent in the third quarter over the June quarter due to sluggish global demand and a strong currency, according to preliminary report released by the Office of National Statistics (ONS) yesterday.

The gross domestic product (GDP) growth in the September quarter is weaker than analysts' and policy makers' forecast of 0.6 per cent, which follows a 0.7-per cent expansion in the previous quarter.

The GDP growth was 2.3 per cent higher in Q3 compared with the same quarter a year ago.

The slowdown in China, the world's second-largest economy, is having its effect on growth prospects in developed countries.

Weak demand coupled with a strong pound is making export of British goods expensive and difficult in the global market.

Services, which constitute the biggest share in the country's economy, grew by 0.7 per cent from 0.6 per cent in Q2. Production increased by 0.3 per cent and agriculture rose by 0.5 per cent.

According to the ONS, the slower GDP growth was primarily on account of manufacturing, which has contracted for the third quarter in a row and was at 0.3 per cent. Construction output also dragged on growth, which fell by 2.2 per cent.

The third quarter GDP is 6.4 per cent higher than the pre-economic crisis peak in March 2008, ONS said.

Policy makers have been keeping the key interest rate unchanged at a record-low of 0.5 per cent for over six years and investors do not expect a hike any time soon.

It is uncertain whether the data will prompt the Bank of England to increase interest rates sooner rather than later, while inflation is at 0.1 per cent, well below the bank's target of 2 per cent.

According to some analysts, the Q3 GDP data points to a more prolonged slowdown in the economy, and the central bank's decision for a rate hike could be postponed to next year.

ONS' preliminary estimate is based on less than half of the total required data, and will be revised twice as more data becomes available.

The US, the world's biggest economy, will come out with its GDP numbers for the quarter on Thursday, which economists expect to be weaker at 1.5 per cent from 3.9 per cent on an annualised basis. On that basis, the British economic growth is 2 per cent in the third quarter, down from 2.6 per cent

According to US Conference Board data released yesterday, the country's consumer confidence index fell well below the forecast of 103 to 97.6 in October from a nine-month high of 102.6 in September.

''Consumers were less positive in their assessment of present-day conditions, in particular the job market, and were moderately less optimistic about the short-term outlook,'' Conference Board director Lynn Franco said.

''Consumers still rate current conditions favorably, but they do not anticipate the economy strengthening much in the near-term,'' Franco added.

Orders for US durable goods dropped by 1.2 per cent in September from a 3-per cent fall in August, signaling that sluggish demand from emerging markets is continuing.

Monthly US job gains data also indicates a decline. About 142,000 jobs were added in September and 136,000 in August, which is well below the 200,000 plus job gains in the previous months.

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