GDP growth hits highest rate since end of 2016

The UK economy grew at its fastest pace for almost two years in the third quarter of the year but a slowdown in consumer spending is expected to take its toll in the final months of 2018.

Economic growth in July was primarily driven by strong retail sales during the football World Cup,according to ONS figures. Picture: Shaun Botterill/Getty Images

The Office for National Statistics (ONS) said that the 0.6 per cent expansion figure represents the fastest quarterly growth since the final quarter of 2016, when the economy grew by 0.7 per cent.

Growth was primarily driven by strong retail sales during the World Cup and a recovery in construction in July, when monthly gross domestic product (GDP) was 0.3 per cent higher.

August and September were both flat, confirming economists’ fears that the heatwave’s boost to the economy faded towards the end of the summer.

Howard Archer, chief economic advisor at the EY Item Club, said he suspects the third-quarter growth figure “will be as good as it gets for some time to come”.

“It is notable that the economy was markedly softer at the end of the third quarter than it had been at the end. Indeed, GDP was flat month-on-month in September, as it had been in August. This contrasted with GDP spiking 0.3 per cent month-on-month in July when the heatwave and the football World Cup were clear boosts to growth.”

Growth in construction and manufacturing output picked up in the third quarter following a weak start to the year, when building projects were delayed by adverse weather conditions.

Output in the construction industry was 2.1 per cent higher in the period, the fastest increase since the first quarter of 2017. Meanwhile, output from the services industries, which include retail, eased to 0.4 per cent compared to 0.6 per cent in the second quarter.

The strength in retail seen earlier in the summer continued into the beginning of the third quarter as consumers snapped up food and drink amid the hot weather and the World Cup. Retail growth slowed to 1.1 per cent in the third quarter, following a 2 per cent rise in the previous period.

Motor trade services fell by 1.9 per cent, the weakest quarterly growth rate since the final quarter of 2012. But car manufacturing increased, helping to improve the UK’s trade balance.

The total trade deficit narrowed by £3.2 billion to £2.9bn. Cars had the biggest impact on the balance of goods imports and exports due to a £1bn rise in non-EU exports and a £1.7bn fall in EU imports. Net trade made the largest positive contribution to GDP growth in the third quarter.

The latest GDP growth figures were in line with the Bank of England’s most recent predictions. It expects growth to pare back to 0.3 per cent in the fourth quarter before steadying at 0.4 per cent thereafter.