Economy: Rate of GDP growth dips after slowdown in both services and manufacturing

The Chancellor of the Exchequer, George Osborne.

The Chancellor of the Exchequer, George Osborne. - Credit: PA

The pace of the UK recovery slowed in the third quarter of the year as manufacturing posted its weakest performance since the start of 2013, official figures showed today.

Britain’s gross domestic product (GDP) grew as expected by 0.7%, the seventh quarter in a row in which it has increased but lower than the 0.9% in the previous period.

Growth was held back by expansion in the dominant services sector being pegged back sharply and Britain’s beleaguered manufacturers seeing a strong performance earlier this year fade away.

The latter sector expanded by just 0.3%, the slowest pace since a 0.1% contraction in the first quarter of 2013, which was before the UK’s growth surge that has seen the economy overtake its pre-recession peak.

GDP is now 3.4% ahead of its level at the start of the crisis in 2008 but manufacturing is still 4.1% behind and construction 8.2% short. The latter grew by 0.8% in the third quarter.

The services sector, which represents three-quarters of output, is 7.2% ahead of the pre-crisis level but its growth was believed to have slowed to 0.7% in the quarter, down from 1.1% previously.

Separate monthly data from August showed month-on-month growth in services ground to a halt though an estimate for the following month suggested it returned to expansion in September.

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For the overall economy, GDP was 3% higher in the third quarter than at the same period last year, a slowdown compared to the 3.2% comparison for the second quarter.

Samuel Tombs, senior UK economist at Capital Economics, said: “The preliminary estimate of Q3 GDP shows that the UK’s economic recovery has broadly maintained its momentum despite a weak global environment and the stronger sterling exchange rate.

“While the 0.7% quarterly rise in GDP fell short of Q2’s 0.9% rate, it matched the average increase seen since the start of 2013. And growth has become broader-based – while quarterly growth in services sector output eased from 1.1% to 0.7%, growth in both industrial production and construction output picked up from 0.2% to 0.5% and from 0.7% to 0.8% respectively.

“Admittedly, recent sharp falls in equity prices, growing signs of renewed stagnation in the eurozone and some softer manufacturing surveys have intensified concerns that the recovery will lose pace in the fourth quarter. But the UK economy has shown on several occasions in the past that it can outperform the rest of Europe for sustained periods.

“And with easing inflation providing a timely boost to real incomes, firms’ employment and investment intentions still strong and private sector balance sheets in improved health, the recovery seems unlikely to suddenly stall. Accordingly, we still expect GDP to grow by a healthy 3% or so next year.”

Chancellor George Osborne said: “Today’s strong growth figures show that the UK continues to lead the pack in an increasingly uncertain global economy.

“With all the main sectors of the economy growing, it’s clear that our recovery is broadly based.

“But the UK is not immune to weakness in the euro area and instability in global markets, so we face a critical moment for our economy.

“If we want to avoid a return to the chaos and instability of the past, then we need to carry on working through our economic plan that is delivering stability and security.”