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UK Economy Slows to 0.5% Growth in Third Quarter

Oct. 27, 2015
'The British economy has been losing momentum,' according to one analyst, and weaker manufacturing and construction are the biggest reasons.

LONDON — The United Kingdom’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% between July and September, the Office for National Statistics said in an initial estimate. That was slightly worse than market expectations for 0.6%-quarter on quarter expansion, and followed growth of 0.7% in April through June.

The nation’s powerhouse services sector grew by a solid 0.7%, but this was partially offset by a 2.2% drop in construction output. Manufacturing meanwhile slid by 0.3% but mining and quarrying activity rose 2.4%.

“The signs have been there for some time — the U.K. economy has been losing momentum,” Hargreaves Lansdown economist Ben Brettell said. “Weaker construction and manufacturing output are the primary reasons for the slowdown, which could prompt concerns that the U.K. economy’s reliance on the services sector is increasing further.

“The manufacturing sector, which represents 10% 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 Osborne, the Chancellor of the Exchequer, 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 0.5% record-low level any time soon.

“The slowdown in U.K. 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,” Schroders economist Azad Zangana said. “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%, 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% last month, compared with zero in August.

Copyright Agence France-Presse, 2015

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