After a busy start to the year in the UK economy, which has so far achieved one of the best performances among Western countries, official reporting accounts saw the growth of the British economy slow in the third quarter this year. As a result, growth slowed the pace to 0.7% in the third quarter compared to the previous three months, or 2.8% annualized. GDP grew 0.9% in the second quarter. According to the ONS, growth in the UK economy was 3% in the third quarter, a slowdown from the 3.2% annual rate recorded in the second quarter.
British Economy Status
British gross domestic product growth slowed to 0.3% in the first quarter, the Office of National Statistics (ONS) announced on Friday (April 28th). This increase compared to the previous quarter is the lowest since early 2016, says the ONS. It is, moreover, more modest than expected by economists, who forecast growth of 0.4%, according to the Bloomberg news agency.
Impact on Global Economy as British Economy Slows Its Pace
This slowdown is observed while, so far, the UK’s economic activity has held up well since the Brexit vote in June 2016. Growth was still 0.7% in the fourth quarter of 2016, making it the largest more vigorous G7 countries. Members of the Bank of England (BOE) and many economists anticipate a slowdown in the world’s sixth-largest economy, given its recent strong expansion after several years of weak, if any, growth. However, this slowdown in the third quarter again indicates that the global economy is affected by the specter of deflation in the euro area and the weakness of China and other emerging markets. The global economy now relies heavily on the United States to support growth.
According to the NSO, “the economic slowdown observed in the third quarter reflected a less sustained growth in the British services sector, which accounts for nearly 80% of GDP. GDP generated by the services sector grew 0.7% in the quarter, compared to growth of 1.1% for the previous three months. The manufacturing and building sectors both advanced.
BOE members are increasingly pessimistic about the UK’s longer-term growth prospects if the Eurozone, the country’s largest trading partner, continues to stagnate, according to the minutes of the last meeting of the committee monetary policy of the central bank.
The Weakness of the Service Sector
This time, the United Kingdom has been affected by weak access to the service sector, which represents a large majority of the country’s activity. It grew by only 0.3% compared to 0.8% in the fourth quarter. The NSO says that sectors dependent on household consumption are going through a bad patch, as rising prices reduce British spending.
While in recent month’s consumption had been the main driver of growth, it began to stall because of the surge in inflation following the weakness of the pound, which considerably increased the price of goods. Other sectors of the economy grew very slowly, with industrial production (+ 0.3%), construction (+ 0.2%) and agriculture (+ 0.3%). This weak growth “is likely to be attributed to Brexit,” says Alan Clarke, an economist at Scotia Bank.