U.K economy likely to grow at 2.2% in 2016

The ONS preliminary estimate of Q3 GDP came in at 0.5% q/q (2.3% y/y), in line with BoE expectations. The output breakdown shows value added grew by 0.49%, driven by services, while industrial was broadly muted (+0.04pp contribution) and construction detracted (-0.14pp contribution).

Within services, the strongest contribution came from professional & support services (+0.18pp) and information & communication services (+0.13pp). Within the industrial sector, growth was pushed up by mining and quarrying (+0.05pp) while manufacturing contributed negatively (-0.03pp).

This release suggests that the UK economy's momentum has begun to ease in light of increasing uncertainty and a weaker global environment,  but remains decent. The composition of value added remains excessively tilted towards services, with manufacturing posting a decrease in Q3. This decline echoes the EEF, the manufacturing representative body, which more than halved its manufacturing growth forecast in its Q3 Outlook Report released on Monday 7 September 2015; at the start of the year it was at 1.7% for 2015 whereas now it is at 0.7%. 

Latest business surveys have edged down but nonetheless point to continued decent growth until the end of the year and into 2016, barring a significant negative shock. 

"In turn, we look for Q4 15 GDP growth to come in at broadly similar levels than Q3 15. The Government's planned significant fiscal consolidation is expected to trigger more cautious behaviour by households, while firms are set to face a period of heightened uncertainty in the run-up to the EU referendum, thus likely resulting in reduced investment. As such, 2015 GDP growth is projected at 2.4%, below 2014 (2.9%), and likely to continue to show ongoing slight moderation to 2.2% in 2016", states Barclays.