London - The UK economy expanded less than previously estimated in the past two quarters in a sign growth is losing some momentum.
Gross domestic product rose 0.4% between July and September instead of the 0.5% previously estimated, the Office for National Statistics in London said on Wednesday. Growth in the second quarter was revised down by 0.2 percentage points to 0.5%.
The revisions indicate a loss of momentum in an economy that continues to rely heavily on consumers and domestic demand. While the economy is seen growing 2.3% next year, almost matching 2015’s pace, economists in a Bloomberg survey published on Tuesday highlighted a British exit from the European Union as a potential threat to the UK outlook.
The economy’s performance in the latest three months matched the weakest since 2012 and compared with quarterly growth that averaged 0.7% last year. The Bank of England (BoE) held its benchmark interest rate at a record-low 0.5% this month and officials have indicated they are in no hurry to follow the Federal Reserve, which raised the key US rate for the first time in almost a decade last week.
Wednesday’s data “suggest that the economic recovery has less momentum than previously thought and still looks worryingly unbalanced,” said Ruth Miller, an economist at Capital Economics in London. “Looking ahead to next year, a number of factors threaten to undermine the recovery.”
GDP per head
The revisions left annual growth in third quarter at 2.1% down from a previous estimate of 2.3%. The economy is now 6.1% above its previous peak in early 2008, compared with the 6.4% previously thought. GDP per head - a measure of a country’s wealth - is just 0.3% above its previous peak after expanding 0.3% in the latest three months.
The pound was trading at $1.4853 as of 12:04, up 0.2% on the day.
In the third quarter, downward revisions to the finance industry explained the revision, while inventories led to the second-quarter change.
The figures paint a picture of an economy continuing to be led by domestic demand, with consumer spending rising an upwardly revised 0.9% in the third quarter and real disposable income growing 4% on the year, the fastest annual pace since the start of 2010.
Wages and salaries rose 1.2%. Spending was also aided by consumers’ willingness to hold onto less of their income, with the saving ratio dropping to 4.4%, matching the second-lowest on record.
Global headwinds
Government spending and business investment also contributed to growth in the third quarter, while net trade knocked 1 percentage point off output as exports fell 0.3% and imports climbed 2.7%. A strong pound and the global economic slowdown are weighing on manufacturers.
The current-account deficit - the difference between money coming into the UK and money sent out - was little changed at £17.5bn in the third quarter, compared with a forecast of £21.5bn. A doubling in the trade deficit was offset by a sharp narrowing in the deficit on investment income. The current-account gap equated to 3.7% of GDP.
For Bank of England rate-setters, the decision about when to begin exiting almost seven years of emergency stimulus hinges on productivity. As labour shortages emerge, companies need to get more from existing workers if the economy is to maintain its momentum with generating inflationary pressures.
Separate figures today showed output per hour rose 1.3% in the third quarter from a year earlier, while unit labor costs climbed 2%, down from 2.2% in the second quarter.