Household spending rebounds as UK growth accelerates

Household spending has rebounded and business investment eked out growth, helping the UK economy pick up pace in the third quarter.

Consumer spending bounced back to 0.6% from 0.2% in Q2
Consumer spending bounced back to 0.6% from 0.2% in Q2

In its second estimate, the Office for National Statistics (ONS) confirmed gross domestic product (GDP) grew by 0.4% between July and September, rising from 0.3% for the first and second quarters.

Consumer spending proved resilient over the period, bouncing back to 0.6% from 0.2% in the second quarter despite the persistent squeeze on household finances from higher inflation and dismal wage growth.

The resurgent performance was driven by new car sales, which had slumped between April and June after people forked out money in the first three months of the year to escape tax changes on high-polluting vehicles.

Business investment also grew in the third quarter, but could only muster up a 0.2% rise to £45.8 billion compared with £45.7bn for the three months before.

However, figures for Britain’s powerhouse services sector eased to a four-year low of 1.4% during the three months to September compared to last year.

The update comes after Britain’s fiscal watchdog served up gloomier forecasts for GDP growth and the UK public finances in Wednesday’s Budget, slashing the outlook on growth and pencilling in higher Government borrowing.

Rob Kent-Smith, ONS statistician, said: “GDP growth in the third quarter remains similar to that seen in the first half of 2017, with professional activities, which include employment agencies and accountancy, providing the biggest contribution to growth this quarter.

“Household spending strengthened after a weak second quarter.

“Spending on transport, which includes cars, is contributing to growth this quarter, having driven the weakness in quarter two after changes to vehicle excise duty led people to bring forward their car purchases to quarter one.

“Meanwhile, growth in business investment remained positive but subdued in the most recent quarter.”

Britain’s net trade deficit saw its biggest expansion for a year, growing by £2.5bn during the third quarter, as trade exports fell by 0.7% and imports rose by 1.1%.