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Our views 11 November 2019

UK: Avoiding recession as consumer spending holds up

By Melanie Baker, Senior Economist

5 min read

Avoiding a technical recession - though a touch weaker than consensus - UK GDP grew 0.3%Q in Q3 or 1.0% year-on-year.  That is nevertheless a fairly weak pace of growth by UK standards and recent business surveys look consistent with a slower pace of growth than this. The monthly data suggests that after a decent July, GDP contracted in both August and September.

Looking at Q3 as a whole, consumer spending continued to tick along (0.4%Q), as expected, contributing positively to GDP growth (supported by ~2%Y real pay growth). Government spending also rose. Business investment was flat (rather than contracting again), although overall investment spending contracted (government investment spending, which tends to be volatile, contracted). Companies appear to have continued running down stocks.

Exports were unexpectedly strong (following a particularly weak Q2), reflecting machinery, transport equipment and chemicals and strong growth in ‘other’ business services. That might reflect some front loading of activity ahead of the October 31 deadline.

Additional government spending is boosting growth prospects, but the outlook for the UK economy remains Brexit dependent and uncertainty on several fronts is dragging on growth in the meantime. 

Graph shows UK GDP from 2013 to 2019 as per the text on page

 

Part 2 of graph showing UK GDP from 2013 to 2019 as per the text on page

Source: Refinitiv Datastream as at 15/09/2019

A graph showing visual representation of Breakdown of QoQ GDP growth

Part 2 of a graph showing visual representation of Breakdown of QoQ GDP growth

Source: Refinitiv Datastream as at 15/08/2019

A graph showing UK Business surveys and GDP from 2006 to 2020 as per text on page.

Source: Refinitiv Datastream as at 15/08/2019

Past performance is not a reliable indicator of future results. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice. Portfolio holdings are subject to change, for information only and are not investment recommendations.