Britain's economy again relied heavily on spending by squeezed households for growth in the three months to September, as businesses invested only cautiously while they await clarity on Brexit, official data showed. The fragile picture of the economy echoed the sharply weaker outlook announced on Wednesday by Britain's budget watchdog,
which prompted finance minister Philip Hammond to say he would spend more over the next two years The Office for National Statistics said overall economic growth sped up moderately in the July-September period to 0.4 percent from 0.3 percent in the second quarter, confirming a preliminary reading. But Britain is lagging other big advanced economies, largely due to the impact of last year's decision to leave the European Union, which has pushed up inflation and left many companies unwilling to commit to new investment while London and Brussels remain at loggerheads over their future ties.
The economy grew by an annual 1.5 percent in the third quarter, the joint weakest growth in more than five years. Growth was driven by spending by households which rose at its fastest pace in a year, helped by a recovery in car sales which had been weak in the second quarter after a tax increase. Separate data published on Thursday showed British shop sales rebounded in November after a sharp fall last month, although the number of retailers reporting rising prices hit their highest level since 1991.
Allan Monks, an economist at JP Morgan, said he thought the pickup in spending by consumers over the summer would prove temporary, given the still-weak income picture for households and a rise in oil prices that will hit their budgets. Howard Archer, an economist at forecasters EY Item Club, said the squeeze on consumers should ease in 2018 when inflation is expected to fall back, but that uncertainties about Brexit were likely to weigh further on business investment.
Businesses upped their investment by 0.2 percent in the three months to September, the weakest pace so far this year. Yael Selfin, an economist with KPMG, said a fall in investment in information technology and other machinery and equipment did not bode well for a recovery in productivity, the Achilles heel of Britain's economy and the biggest factor behind Wednesday's grim growth outlook.
"It will be particularly important to watch the performance of business investment in coming months, not just as a sign of business confidence in the direction the UK is taking, but also as an indication of whether productivity and future UK growth potential are likely to pick up," she said. In another sign of how reliant Britain's economy remains on its consumers, the ONS said the country's trade deficit weighed heavily on growth in the third quarter, despite the pound's fall which some Brexit supporters have said should help exporters.
The Bank of England, which raised interest rates for the first time in a decade earlier this month, hopes stronger growth among manufacturers will bolster the economy as it faces the challenge of Brexit.