Inflation and Brexit Concerns Hold Back U.K. Economy
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Annual growth in GDP drops to weakest pace since 2013
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Households under pressure as prices rise faster than wages
A picture of inflation-squeezed consumers and Brexit-wary companies emerged in the U.K.’s latest overview of its economy.
Annual growth in the third quarter slowed to 1.7 percent, slightly higher than previously estimated but still the weakest pace in 4 1/2 years. The economy expanded an unrevised 0.4 percent from the second quarter, well below the rates seen before the European Union referendum 18 months ago.
The figures from the Office for National Statistics on Friday highlight the twin pressures facing the economy, both of them relating to Brexit.
Disposable incomes rose just 0.2 percent from a year earlier after adjusting for inflation, which has been driven higher by the fall in sterling since the vote to leave the EU. Consumer spending climbed 1 percent, the least in 5 1/2 years.
The ONS also said that households have paid out more money than they received for four consecutive quarters, the first time that’s happened since records began in 1987.
Companies, meanwhile, remain reluctant to spend until there is greater clarity about life outside the EU. Business investment increased an annual 1.7 percent, the worst reading for more than a year.
IMF Forecasts
The figures come days after the International Monetary Fund predicted the economy will slow next year and urged the government to reach an early Brexit transition deal with the EU.
Separate figures Friday showed the dominant services industry, which provided almost all of the economy’s growth in the third quarter, rose 0.2 percent in October. Taken together with a mildly positive manufacturing performance in the month, it suggests the economy got off to a steady start this quarter.
The current-account deficit narrowed in the three months through September, which may ease concerns about the sustainability of the balance of payments.
Households saved less of their income in the period, but a saving ratio of 5.2 percent indicates Britons have enough in reserve to maintain their spending without going further into debt.
Revisions to exports and imports in the third quarter mean net trade was a neutral influence on the economy in the quarter. It was previously estimated to have acted as a drag.
The latest GDP estimates contained widespread revisions due to a reassessment of output during 2016.
— With assistance by Harumi Ichikura, and Mark Evans