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UK growth to remain subdued in third quarter

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Britain’s economic growth looks set to show little sign of improvement in the third quarter despite a slight bounce-back in the dominant services sector last month.

Figures from the IHS Markit/CIPS Purchasing Managers’ Index (PMI) point to gross domestic product increasing by 0.3% in the July-September period, the same pace as that seen earlier in the year.

Services PMI data for September gave a reading of 53.6, up from an 11-month low of 53.2 in August – on a measure where the 50-mark separates growth from contraction.
Separate figures earlier this week suggested the construction sector shrinking while manufacturing growth, though still robust, had slowed.
But it is the services data that is the most significant to overall growth as the sprawling sector – ranging from bars and restaurants to law firms and accountants – represents nearly four-fifths of the UK’s economic output.
Chris Williamson, chief business economist at IHS Markit, said: “The three PMI surveys put the economy on course for another subdued 0.3% expansion in the third quarter, but the fourth quarter could see even slower growth.”
He said across all three sectors, new business was the weakest since last summer while optimism slipped and higher costs were passed on to customers – likely to drive inflation higher.

“The surveys therefore portray an economy struggling with the unwelcome combination of sluggish growth and rising prices,” Mr Williamson said.
In the services sector, firms cited Brexit-related uncertainty and worries about the economy as reasons for their gloomier mood.
Mr Williamson said the Bank of England faced a dilemma as, while inflationary pressures would add to the likelihood of an interest rate hike, the tepid economic performance would normally be associated with easier monetary policy.
James Smith, economist at ING Bank, said: “The latest UK service sector data is unlikely to deter the Bank of England from hiking in November, but we think any tightening thereafter could be limited.”
Paul Hollingsworth, senior UK economist at Capital Economics, said: “The rise in September’s services sector PMI will help assuage fears that the economy is losing momentum, but it suggests that growth struggled to pick up pace in Q3.”

Source: SKY