UK economy grows at fastest rate in two years but longer term growth subdued

The UK economy grew at its fastest rate in two years in the three months to September after a strong summer.

GDP grew by 0.6 per cent in the third quarter of the year, up from 0.4 per cent in the three months to July, the quickest economic expansion since the end of 2016, according to the Office for National Statistics.

But monthly growth for August and September was flat after strong growth in July off the back of a heatwave and the World Cup.

The services sector was the main driver of growth, contributing 0.33 percentage points, while the construction industry also helped boost growth, contributing 0.13 percentage points and rising 2.1 per cent in terms of its sector growth.

Production grew 0.8 per cent over the quarter, its highest rate in a year, but was flat in September and the manufacturing sector returned to growth – of 0.6 per cent – after two consecutive quarters of negative growth.

Head of national accounts at ONS Rob Kent-Smith said: “The economy saw a strong summer, although longer term economic growth remained subdued.

“There are some signs of weakness in September with slowing retail sales and a fall back in domestic car purchases.

“However, car manufacture for export grew across the quarter, boosting factory output.

“Meanwhile, imports of cars dropped substantially helping to improve Britain’s trade balance.”

Analysts said the data was "skewed" by the summer's activity and that business confidence would continue to struggle while the Brexit negotiations stuttered.

"Quarterly growth has reached a near-two year high, but looking beneath the surface, the uptick is skewed by the summer’s buoyant, world-cup fuelled retail activity, Tej Parikh, senior economist at the Institute of Directors, said.

"With order books weakening and major hiring and investment decisions being held back, business activity looks set to lose steam in the coming quarters," he added.

John Hawksworth, chief economist at PwC, said: "We expect GDP growth to slow to only around 0.2-0.3 per cent in the final quarter of 2018, given that business surveys for October suggest many companies are putting off major investment decisions until the current uncertainty around Brexit is resolved.

"But we would expect consumer spending to hold up reasonably well in the run up to Christmas, given the recent pick-up in earnings growth and continued low unemployment rates."