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11.11.2019 19:50

UK economy shows 0.3% growth for Q3 - ING

James Smith, a Developed Market economist at ING, notes the UK economy grew by 0.3% in the third quarter, although the ongoing distortions of Brexit continue to make the figures hard to read. 

  • "These latest growth figures suggest there was a sizable drawdown in inventory during the third quarter, despite the revised Brexit deadline fixed at the end of October. It’s possible that firms built up the buffers to some extent again in October, although with warehousing space in short-supply and some existing stock presumably still held, we suspect this effect will be fairly modest.
  • Ultimately, this is essentially noise and makes extracting the underlying growth trend trickier. It also means that the trade data should be taken with a fairly large pinch of salt.
  • Even if the Conservatives win a majority at the forthcoming election – and the deal is swiftly ratified – focus will quickly turn to the transition period. This standstill phase lasts until December 2020, and almost certainly will require extending. Until it is, there remains a risk of the UK (excluding Northern Ireland) leaving the single market and customs union at the end of 2020 – a scenario not dissimilar from ‘no deal’ for most firms.
  • One of the more surprising features of this year’s economic performance is the resilience in consumer spending. Admittedly, the pace of consumption growth has been fairly unexciting – spending contributed 0.25% to the overall growth performance. But the performance over the first three quarters of 2019 has been fairly consistent, and indicates that unlike firms, consumers have been less fazed by the twists-and-turns of the Brexit story.
  • However, amid the challenging investment backdrop, there are early signs that the glut in new orders is translating into weaker hiring demand (including in the dominant services sector). Vacancy numbers have fallen modestly, while the latest PMIs spoke of redundancies in some areas. If this story deteriorates further in 2020, this would be negative for consumer activity.
  • All in all, we think the economy is probably growing at a pace of roughly 0.2% per quarter. For now, we think the Bank of England will probably avoid cutting interest rates in the near-term, although a lot depends on Brexit, and whether the jobs market deteriorates further."


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