Past revisions boost growth in three months to August
The UK economy expanded by a solid 0.7% in the three months to August, the same rate of growth as in July 2018. These are the highest growth rates since February 2017, pointing to a bit of rebound in activity after a weak spring.
Breaking down the data by month however, and we find that this growth has been predominantly driven by past revisions to the data in June and July (buoyed by retail sales and construction in particular). Meanwhile growth in August was flat.
Services growing but not by that much
In the three months to August the services sector expanded by 0.5%, continuing to do the heavy lifting for the economy. Warm weather across June and July, as well as the prospect of football coming home boosted the sector, while in August the tech sectors (computer programming and information) provided a notable boost.
Nevertheless this performance is still relatively subdued by historic standards, and August’s flat growth suggests not much has materially changed after the weather related upturn, with consumer caution at home still holding back some spending. This is further compounded by persistently weak real wage growth.
Meanwhile construction looks to have recovered its weather related losses from earlier in the year, expanding by 2.9% in the three months to August. The contraction in the August data however suggests this recovery is now over, and further gains will be harder to come by.
Weakness in manufacturing persists…but not as bad as first thought
Manufacturing contracted by 0.2% in August, continuing a recent trend of easing activity in the sector. However there was some good news with notable revisions in the data for the two preceding months. This resulted in 0.8% growth in the three months to August (its strongest growth since January) and an upward revision in the sector’s q2 data.
As ever the sector picture was a mixed bag. Pharmaceuticals have mounted a decent recovery after a very weak start to the year, but investment goods manufacturers (electrical equipment and mechanical equipment in particular) have seen growth trend down quite substantially. This backs up recent findings in our Investment Monitor, with uncertainty taking hold for many investment intensive sectors.
Trade data continue to disappoint
Separate trade data showed Britain’s goods trade deficit with the rest of the world touched a three-month high in August, with import growth outpacing export growth. This continues the recent trend which has seen net trade drag on growth overall.
While not much can be garnered from one month’s worth of data, the possibility of stockpiling (on both sides of the channel) as well as trade tensions which haven’t yet had any discernible effect, means we will continue to track the data closely.
Overall today’s data doesn’t change our outlook on the economy too much.
- Weak consumer confidence, combined with inflation and meagre wage growth, continues to hold back the services sector.
- Construction has mounted a recovery after a weak start to the year, while manufacturing continues to ease from the heights of last year.
- Rising trade tensions and the B-word continues to cause uncertainty, impacting on business investment.
- For these reasons we still think GDP growth of 1.2% - just above the IMF’s revised forecasts of 1.1% - can be expected this year.