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ECONOMIST REACTION: Is the UK entering a slowdown

Published by Business Insider on Tue, 27 Oct 2015

The UK's GDP figures for Q3 just came out and they're weaker thanexpected.The UK recorded a growth rate of 0.5% from Q2 to Q3, below the 0.6% analysts expected, and the 0.7% recorded three months earlier.The growth we did see was overwhelmingly driven by the services sector. Both manufacturing and construction dragged on the figures.The dominance of the services sector is causing some worries that the UK is seeing a classic British recoveryheavy on consumer spending, low on investment.Is the UK economy entering a more prolonged slowdown' Or will the steady growth seen over the last two years continue'We rounded up the reactionto Tuesday's GDP numbers from analysts to find out.SEE ALSO:The ECB's chief economist says there are 'no taboos' as Europe loads the QE bazooka againSamuel Tombs, chief UK economist, Pantheon Macroeconomics"In one line: The start of a pronounced slowdown...Looking ahead, the latest surveys suggest that construction output should spring back in Q4. But the current strength of the pound points to a deepening of the recession in the manufacturing sector, which is twice the construction sectors size. Moreover, the services sector is likely to slow too as the fiscal squeeze intensifies, jobs growth fades and inflation rebounds. As a result, we think the consensus view that annual GDP growth will moderate from 2.5% to just 2.4% in 2016 doesnt fully acknowledge these constraints; we expect a more pronounced slowdown to 1.5% in 2016."Dominic Bryant, BNP Paribas"With a weight of 78.6% in GDP, service sector output is a key driver of the overall path of GDP growth. This rose by 0.7% q/q in Q3, up slightly from 0.6% in Q2. August service sector output was, however, flat m/m. The ONS has assumed a 0.3% q/q increase in September. This might appear at odds with the fall in the service sector PMI that month, but the two indicators often diverge on a monthly basis. Moreover, September retail sales were much stronger than expected, suggesting some support from the consumer.Overall, growth of 0.5% q/q remains solid and probably a little above the trend growth rate for the economy. External headwinds suggest the possibility of a further slight moderation in growth over the next couple of quarters leaving growth in 2016 around trend."Kallum Pickering, senior UK economist, Berenberg"The economy is at risk to shocks if the structural issues holding construction and manufacturing back arent dealt with...Both manufacturing and construction are still below pre-crisis levels and need structural reform to boost the supply side of the market. Otherwise, the prospects of a stronger pickup in output are nowhere in sight. In the construction industry, firms are experiencing increased costs pressures coming from labour and materials shortages. For production: Its biggest component, manufacturing, not only suffers from weakness in global trade, but, more precisely, a lack of investment and a lack of willingness of firms to base production in the UK. This stems from, among other things, a chronic uncertainty in the UKs future energy supplies due to lack of investment in energy capacity. Taken together, this implies that if a decline in UK services were to take place, the UK economy would be vulnerable."See the rest of the story at Business Insider
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