News | Published October 10 2019

Growth in three months to August wards off recession fears

The UK economy should avoid a recession according to the Office for National Statistics after growth figures for the three months to the end of August exceeded expectations.

The ONS added that the economy would have to suffer a contraction as major as 1.5 per cent in September alone for an overall shrinkage in the third quarter.

In the three months to the end of August, the economy grew by 0.3 per cent, boosted by TV and film production which counterbalanced a poor performance in the manufacturing sector.

However, the economy did see a surprise 0.1 per cent contraction in the month of August.

Before the August contraction, the ONS had upped its growth forecast for the third quarter to 0.4 per cent, a 0.1 per cent increase on previous estimations, which analysts believe should remain the case despite the setback.

Economics expert Andrew Wishart of Capital Economics said that the 0.4 per cent growth outlook for the third quarter “banished” any lingering fears that the economy was already in recession.

Data from the first half of the year had been volatile because of preparations for the original Brexit date in March, which had seen major stockpiling and an early annual shutdown in the automotive sector.

Over the three months to August, the dominant services sector grew by 0.4 per cent, which offset flat growth over the previous three months. Meanwhile, construction output was up by 0.1 per cent, while the production sector fell by 0.4 per cent.

Rob Kent-Smith, the ONS head of GDP, said: "Growth increased in the latest three months, despite a weak performance across manufacturing, with TV and film production helping to boost the services sector.

"Services provided [the] majority of the growth over the three months, with production and manufacturing falling back.”

The surprise contraction in August defied analysts' forecasts of zero growth for the month.

The construction sector was the only one to grow over August, while manufacturing output went down by 0.7 per cent and there was no growth in services.

John Hawksworth, leading economist at PwC, said that although a recession should be avoided in the third quarter, August’s gloomy figures must be heeded as a warning.

He added that “problems” may be looming in the fourth quarter, when “heightened Brexit-related uncertainty takes a toll on both business investment and consumer confidence.”

According to analysts, a no-deal Brexit would likely see the UK enter a prolonged period of recession, while a further Brexit delay beyond October 31 with a view to a future withdrawal agreement would see economic growth over the course of 2020 restricted to a modest 0.5 per cent.

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Authored by

Scott Challinor
Business Editor
October 10 2019

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