Economists nervous as consumer spending continues to fuel UK GDP growth

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Consumer spending continues to hold up the UK economy (Source: Getty)

A strong increase in consumer spending drove UK GDP growth in the third quarter, but economists warned the British economy’s reliance on consumption will not last.

Consumer spending grew by 0.6 per cent in the three months to September as GDP expanded by 0.4 per cent, according to more detailed estimates of economic activity from the Office for National Statistics (ONS).

ONS statisticians attributed the rise in spending to increased outlays on cars, after changes in vehicle excise duty led consumers to bring forward their purchases.

Read more: Budget 2017: Government's economic forecasts revised down significantly

Spending has been one of the big drivers of growth during the past year, in spite of increased inflation since the crash in sterling after the vote to leave the EU in June 2016.

Prices have risen much faster than wages over the past year, yet people have continued to spend, sustaining growth.

John Hawksworth, PwC chief economist, said: “It seems consumers are still dipping further into debt to keep their spending growing by more than real disposable incomes.

“This rise in personal debt cannot continue forever, so consumer spending growth is likely to slow further next year.”

Read more: Fears of UK retail nightmare before Christmas as footfall and spending dip

Third-quarter growth picked up from 0.3 per cent in the second, but that is likely to prove “unsustainable”, said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

He said: “Looking ahead, we continue to expect quarter-on-quarter GDP growth to fade to 0.2 per cent in the fourth quarter, as households’ spending slows again. The squeeze on real wages still has further to run.”

GDP per head, the amount of output per person, rose by only 0.3 per cent in the third quarter.

The more detailed growth figures come a day after the Office for Budget Responsibility (OBR), the independent fiscal watchdog, downgraded its predictions for productivity growth, the driver of increased wealth creation.

The lower productivity forecasts will mean slower growth in the years ahead than previously expected, the OBR said.

Read more: Budget 2017: City economists react to growth downgrade

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