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The UK economy grew 0.4 per cent in the third quarter of 2017, driven by household spending as growth in consumption outpaced incomes.
A 0.6 per cent quarterly increase in private consumption was the main driver of growth, according to the second growth estimate published by the Office for National Statistics on Thursday. An increase in the trade deficit was offset by increased investment.
Consumer spending has powered the UK economy since the Brexit vote, despite inflation outpacing wage growth. This has led to higher levels of borrowing and a lower proportion of household saving.
The latest figures suggest that, so far, economic growth has not been rebalanced towards investment or trade.
“Business investment slowed in the third quarter and remains weak at 0.2 per cent, with net trade still failing to sustain a positive contribution to growth despite the weaker currency and global backdrop,” said Allan Monks, UK economist at JPMorgan.
The performance of the UK economy contrasts with surveys of activity in the eurozone, also published on Thursday. Purchasing managers indices for the currency bloc pointed to its best performance for six-and-a-half-years.
The UK’s quarterly growth figure was unrevised from the ONS’s earlier estimate as the service sector expanded in line with its 0.4 per cent forecast.
Rob Kent-Smith, ONS statistician, said: “Professional activities, which include employment agencies and accountancy, provided the biggest contribution to growth this quarter.”
Previously published figures from the ONS showed that British manufacturing bounced back during the third quarter after contracting during the second quarter. The construction industry, however, contracted over two consecutive quarters.
“Household spending strengthened after a weak second quarter,” said Mr Kent-Smith. “Spending on transport, which includes cars, is contributing to growth this quarter, having driven the weakness.”
Changes to vehicle excise duty in April led to a steep fall in car purchases in the second quarter, so while third-quarter car sales remained weak, they were still up on the previous period.
“Looking through these timing effects, real consumer spending growth remains dampened by higher inflation, but it seems consumers are still dipping further into debt to keep their spending growing by more than real disposable incomes,” said John Hawksworth, PwC chief economist.
Investment contributed 0.5 percentage points to overall economic growth. Housebuilding contributed a 0.3 percentage points, while business investment added a further 0.2 percentage points.
However, this investment only served to offset an increase in the UK’s trade deficit, as imports increased and exports fell.