GDP hits two-year high but 'unlikely to last'

GDP hits two-year high but 'unlikely to last'

GDP figures released this morning (November 9) showed the UK economy has expanded at its fastest rate for two years, but a decline in business investment indicates the spurt is temporary, according to Yael Selfin, chief economist at KPMG UK.

The data showed that GDP grew by 0.6 per cent in the three months to September. But Ms Selfin noted that business investment declined by 1.2 per cent.

Business investment levels are closely watched by economists as a forward indicator of economic prospects.

This is because a business undertaking fixed capital investment now, will likely be spending further capital on staff and utilities as they put the fixed assets in which they have invested today to work.

That generates future economic activity which supports growth.

In addition, if businesses have the confidence to invest, it implies confidence that demand for goods and services remains strong.

Ms Selfin said manufacturing was also strong in the three months to the end of September, but the data around this part of the economy was "erratic" and would likely fall in the coming months.

She said: "The upward momentum we have seen this quarter is unlikely to last. The outlook for the rest of the year is for a slightly weaker growth in the final quarter, as uncertainty around Brexit puts downward pressure on investment and relatively weak households’ finances rein in consumer spending.

"Our forecasts therefore remain for the UK economy to grow by 1.3 per cent this year and by 1.6 per cent in 2019."

The comparable GDP figure for the Eurozone for the latest quarter is 0.2 per cent.

The data also contained a GDP estimate for the month of September. This showed the economy didn’t grow at all in that month.

This should be seen in the context of the monthly estimate for GDP growth in August having also recorded a zero when it was released in October, but later being revised upwards.

Samuel Tombs, chief UK economist at Pantheon Economics, said the strong GDP for the summer months was "weather related" and he expects the data for the final quarter of the year to be "very weak".