Consumption underpins third quarter growth

Ben Southwood
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THE UK rebounded out of recession in the third quarter, figures out yesterday confirmed, driven by consumers pulling out their wallets and spending.

Output grew one per cent between the second and third quarters, the Office for National Statistics said, the same as their original estimate – driven by the 0.6 per cent rise in household consumption expenditure.

But Citi analyst Michael Saunders said this data showed the UK is failing to rebalance away from consumption and towards exports and investment, with the latter making up the just 13.9 per cent of GDP – the lowest fraction since records began in 1955.

Business investment presented a rosier picture, rising 3.7 per cent on the quarter to £31.3bn, making it 4.5 per cent higher than a year earlier. But this means business investment is still just 8.1 per cent of GDP, which is well below the average of 10.3 per cent for the past 20 years, according to Saunders.

The index of services grew 0.5 per cent into September, capping off 1.1 per cent growth over the year, but analysts warned that these figures did not indicate underlying strength in the biggest sector of the economy.

Chris Williamson at Markit predicted the economy would fall back into decline in the fourth quarter. “The strong bounce in the UK economy was confirmed by the updated GDP estimate, but payback is likely in the fourth quarter, with the country facing a slide back into contraction.”