Expert from Markit, Chris Williamson comments on the UK GDP data from the ONS
Chris said: “The latest official data showed the UK economy continued to grow at a reasonably strong pace in the autumn, with increasingly robust domestic demand from businesses and consumers being offset by weak trade as key export markets remained in the doldrums and the strong pound hit competitiveness.
“The UK economy grew 0.5% in the third quarter, according the latest official GDP estimates from the ONS, confirming the initial estimate.
“Growth slowed from 0.7% in the second quarter as international trade exerted the strongest drag on record, suggesting the UK is being hurt by weakened global demand and the strength of sterling.
“Trade took a huge 1.5% off GDP growth. However, we’d treat the trade data with caution, as the numbers are both volatile and prone to revision. Note that trade had boosted GDP by 1.4% in the second quarter. Eventually, we’d therefore expect third quarter GDP to be revised up to 0.6% as the trade data get revised.
“Another area of doubt is construction, were the official data suggest output fell 2.2% in the three months to September, which contrasts with stronger business survey data, again suggesting there’s a likelihood of the official data being revised higher.
“Industrial production also rose, up 0.2%, though this masked a 0.4% decline in manufacturing output, the latter presumably hit by the decline in exports.
“The main driver of growth was therefore once again the service sector, where output rose 0.7%, accelerating from the 0.6% rise seen in the second quarter. Both business and consumer oriented services grew strongly, pointing to increasingly robust domestic demand.
“Looking ahead, further growth of 0.6% is signalled for the economy in the fourth quarter, according to Markit’s PMI survey data, which would mean the economy grew by a respectable 2.4% in 2015.
“The sustained strong growth suggests that the economy is capable of withstanding higher interest rates, but clearly the Bank of England remains worried by the lack of inflation and the uncertain external environment, meaning there’s little chance of any imminent interest rate hike. However, if the economy continues to show such robust growth in early 2016, there’s a good chance of rates starting to rise in the spring. The caveat is that wages growth and the strength of sterling will of course also remain important keys to the timing and pace of any rate hikes.”