U.K. economic growth deceleration likely to be modest in Q4, says Lloyds Bank

The U.K.’s incoming economic data have been strictly assessed since the Bank of England’s multi-faceted policy easing on 4 August. The data have been scrutinized on the degree to which they bear out the view of an uncertainty driven slowdown in the aftermath of the EU referendum. Economic activity trends continue to seem relatively resilient. In the third quarter, the U.K. economic growth grew 0.5 percent sequentially, slight modest decline from the second quarter. Business investment in particular recorded its second straight growth.

So far, survey data for the December quarter remains strong, with the composite PMI in November at its strongest since January 2016. But surveys contrast with ‘hard’ official data for industrial and construction output, which both recorded marked declines in October, and the first shrinkage of employment since the second quarter of 2015 registered for the three months to October, noted Lloyds Bank in a research report. Altogether, the available information indicates towards a modest further growth deceleration in the fourth quarter.

The fall in uncertainty metrics since their peak in July has also been marked, with November readings quite below July’s post-referendum spike. If sustained, reduced uncertainty would indicate towards a more gentle growth slowdown that appeared likely after the sharp rise in July.

In all, certain drag in investment as the prospect of the U.K.’s exit from the EU approaches is possible. However, the significance attached to this channel has been overstated, said Lloyds Bank.

“Softer outturns for economic activity over the course of 2017 and 2018 are more likely to result from the weakness of sterling pushing up on import costs and dragging on real purchasing power, both for consumers and as a determinant of business investment spending”, added Lloyds Bank.