The U.K. preliminary estimate of the third quarter GDP indicated that the economy has rebounded in the September quarter after the fall in activity in the second quarter, thereby averting a technical recession. Nevertheless, the 0.3 percent quarterly rise in output was underwhelming relative to expectations, with the Bloomberg consensus and the Bank of England’s latest forecast from its Monetary Policy Report, all centred on a 0.4 percent outturn, noted Lloyds Bank in a research report. However, the rise was still stronger than the 0.1 percent fall implied by the PMIs.
However, delving into the monthly data, it is evident that most of the rise in output in the quarter was driven by the solid start made in July. After the rise of 0.3 percent in July, output dropped sequentially throughout August and September implying that the economy lost momentum throughout the quarter.
Monthly falls in output of 0.2 percent and 0.1 percent in August and September, respectively, provide a more challenging arithmetic backdrop for the economy in the fourth quarter. Still, the breakdown of expenditure for the third quarter report gave some interesting reading. The major point is the absence of a boost from stockbuilding in the third quarter. Surveys indicated towards strong possibility that in the months leading up to the October Brexit deadline, companies increased their purchases of stocks. This was anticipated to boost GDP growth in the third quarter, but weigh on activity in the fourth quarter, said Lloyds Bank.
“Looking ahead, the economic data is likely to remain exceptionally volatile due to political development, making it harder to read underlying trends in the economy. However, as today’s report highlights, the economy continues to display ongoing resilience in exceptionally uncertain times, albeit economic momentum seems to be fading into year-end”, added Lloyds Bank.
