New figures from the Office for National Statistics (ONS) yesterday morning show that the UK narrowly avoided a second quarter of economic contraction and the official declaration of recession.
GDP grew by 0.3% between July and September; half a percent better than the -0.2% growth of April to June and 1% better year-on-year than the poor third quarter of 2018. The BBC’s economics editor, Faisal Islam, reported that even with positive data, the UK economy is at its slowest growth rate since the end of 2009 and the height of the financial crisis.
Q3 was bolstered by 0.4% growth in the Services sector and a 0.6% gain for Construction, but the ONS warned that both Manufacturing and Production had stagnated during the three-month period, and that the economy did contract by 0.1% in September. Business investment is also on a sharp downward trajectory, with the ONS reporting that Q3 was flat, but the UK had experienced investment contraction in five of the last eight quarters.
Experts have expressed their concerns about the weak figures. Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC), said: “While there was welcome confirmation that the UK avoided recession in the third quarter, the stronger headline figure masks an alarming loss of momentum through the quarter from a relatively strong July outturn and therefore does little to suggest any meaningful improvement in UK’s underlying growth trajectory.
There could be worse to come, however, if the Institute of Directors are to be believed. Tej Parikh, Chief Economist at the IoD, said in a press release: “A return to growth is welcome news, but narrowly avoiding a recession is nothing to celebrate.
“The UK economy has been in stop-start mode all year, with growth punctuated by the various Brexit deadlines. Indeed, the pick-up in the third quarter numbers may slightly exaggerate the strength in the economy, with some activity likely to have been brought forward before October 31st. The final quarter of 2019 could be weaker as stockpiles continue to be run down.”
Such is the UK’s economic fragility that Sky News reported on Friday that the credit ratings agency Moody’s had changed its outlook on the economy from stable to negative, due to erosion in institutional strength”. The suggestion now is that the UK will shortly be downgraded, meaning it is less trusted for things such as debt repayments on loans.
Despite the news, the pound gained a cent in value yesterday following the Brexit Party’s announcement of a ‘Leave alliance’, in which it would stand down in current Conservative seats. Sterling’s gains in turn knocked gold down to as low as £1,125 per ounce, on top of wider pressure on demand caused by the “will they, won’t they” trade talks between the United States and China.
Today, the pound has slipped from $1.286 to $1.283 following news that UK employment is down by over 50,000 jobs, vacancies are down by 14,000 positions, and wage growth is down from 3.8% to 3.6%.