The UK economy picked up a little speed in the third quarter but is "still no more than in the middle lane”, according to a leading economist.
Howard Archer, chief economic advisor to the EY ITEM Club, said the component mix of GDP in the third quarter looked more favourable, with business investment revised upward to show relatively steady growth.
He said the third-quarter pick-up in consumer spending came despite purchasing power continuing to be squeezed by higher inflation and weak earnings growth.
The figures from the Office for National Statistics confirmed the UK economy picked up modestly in the third quarter as GDP growth edged up to 0.4% quarter-on-quarter from 0.3% in both the second and first quarters.
“The component breakdown of GDP growth in the third quarter was more favourable than previously reported,” said Archer.
‘Healthy manufacturing output’
“The third-quarter pick-up in consumer spending came despite purchasing power continuing to be squeezed by higher inflation and weak earnings growth. Furthermore, employment dipped in the third quarter."
Archer said consumer spending may have been lifted in the third quarter by the weak pound leading to more tourists visiting the UK and spending, in addition to more people holidaying at home.
He said the third-quarter improvement in growth was led by “markedly improved industrial production, benefiting from healthy manufacturing output”.
Industrial production expanded 1.3% in the third quarter, with manufacturing output up 1.3%. This represented substantial improvement on the second quarter, when both industrial production and manufacturing output contracted by 0.1%.
Archer said he expected the UK economy to continue to grow in 2018, although Brexit concerns could hold it back unless a speedy transition deal is agreed.
“We see the economy growing by around 1.5% again in 2018. Growth in 2018 should be helped by the squeeze on consumers easing as the year progresses,” he said.
“We expect inflation to fall back from 3.1% in November to close to 2% by the end of 2018 as the impact of sterling’s past weakness increasingly fades.
“Economic activity is likely to be hampered during much of 2018 by Brexit uncertainties which could limit business investment in particular.
“Much will depend on how quickly a transition arrangement can be agreed between the UK and the EU. If a transition arrangement can be agreed early on in 2018, it is likely to provide a boost to investment prospects over the year.”