UK growth eases on construction and manufacturing

The ONS preliminary estimate of UK  Q3 GDP came in at 0.5% q/q (2.3% y/y), below consensus and BoE expectations. The output breakdown shows value added grew by 0.49%, driven by services, while industrial was broadly muted and construction detracted. 

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, as expected, but remains decent. The composition of value added remains excessively tilted towards services, with manufacturing posting a decrease in Q3", says Barclays. 

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%. 

The EEF cited sterling strength and weak global demand for poor exports, noting that "exporters have had their worst quarter for new sales in six years". Equally, PMI surveys for both services and manufacturing over Q3 found that there was "customer hesitation in placing new contracts linked to global economic uncertainty".

"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, Q4 15 GDP growth is expected to come in at broadly similar levels than Q3 15 (with upside risks from the Rugby World Cup)", says Barclays.