UK economy slows to 0.5% growth in third quarter

27th October 2015, Comments 0 comments

Britain's economic growth slowed in the third quarter, hit by shrinking construction and manufacturing activity, official data showed Tuesday.

Gross domestic product (GDP) -- the combined value of all the goods and services produced in the economy -- expanded by 0.5 percent between July and September, the Office for National Statistics said in an initial estimate.

That was slightly worse than market expectations for 0.6-percent quarter on quarter expansion, and followed growth of 0.7 percent in April through June.

The nation's powerhouse services sector grew by a solid 0.7 percent, but this was partially offset by a 2.2-percent drop in construction output.

Manufacturing meanwhile slid by 0.3 percent but mining and quarrying activity rose 2.4 percent.

"The signs have been there for some time -- the UK economy has been losing momentum," said Hargreaves Lansdown economist Ben Brettell.

"Weaker construction and manufacturing output are the primary reasons for the slowdown, which could prompt concerns that the UK economy's reliance on the services sector is increasing further."

He added: "The manufacturing sector, which represents 10 percent of the economy, is battling twin headwinds of a stronger pound and weaker demand from abroad as the global economy falters."

In response to the slowdown, Britain's Conservative finance minister George Osborne warned there were more "tough decisions" required to keep the economy on track.

"There are clear global risks and there is still much more to do to fix our economy," said Chancellor of the Exchequer Osborne, who will deliver an Autumn budget update next month.

"In the Autumn Statement we will take more steps to ensure we feel the recovery right across our country, make the long-term investments for the future and, crucially, continue to make the tough decisions required so that Britain lives within its means."

Meanwhile, analysts said Tuesday's data would ease pressure on the Bank of England to raise interest rates from their current 0.50-percent record-low level any time soon.

"The slowdown in UK growth is by no means a disaster, but it will put pressure on the Bank of England to delay the first rate hike, especially as inflation remains in negative territory," said Schroders economist Azad Zangana.

"We continue to forecast no change in interest rates until May 2016."

The BoE's chief task is to keep inflation close to a government-set target of 2.0 percent, and Britain's annual inflation rate fell back into negative territory in September, dampened by lower prices for food and petrol.

The 12-month Consumer Price Index (CPI) inflation rate sank to minus 0.1 percent last month, compared with zero in August.

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© 2015 AFP

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