Economy resilient in the face of Brexit drama but cold winter lies ahead
The economy is growing at the fastest rate since the end of 2016.
Not just that, the growth came from almost every part of the economy. Unlike in many previous quarters, where the economy was kept afloat primarily by a strong performance from the dominant services sector, this time around the only sector of the economy to shrink was the government.
There is, as yet, little evidence from the national accounts that companies across the UK are doing much stockpiling.
For all the scare stories about panicked building up of inventories, the numbers show that across the economy these are increasing only very slightly.
Moreover, at this current pace, the UK is growing at a faster rate than the eurozone. Hurrah, right?
Well, wait for the bad news. Actually when you look not at the overall quarterly growth figure but the month-on-month rate, you’ll find that the economy didn’t grow at all in August and September. It flatlined.
The only reason the overall quarterly growth rate was so high was a very strong month in July (World Cup and weather related), and the so-called base effects caused by the fact that the second quarter was relatively weak.
This alone suggests that the UK economy slowed down towards the end of Q3. Now consider the fact that other indicators of activity, such as the purchasing managers indices, are pointing towards weak growth this autumn and everything seems to suggest we are in for quite a cold economic winter.
Second piece of bad news: business investment is looking poor. Indeed the amount companies invested dropped in Q3 for a third successive quarter. It is the first time the UK has faced three successive quarters of business investment contraction since the 2008 crisis and recession.
The suspicion is that this is at least partly down to Brexit. But, to end with some good news, thus far there is nothing in the numbers to suggest that businesses and households are panicking.
The negotiations may be going down to the line but the Great British household remains relatively calm and cautious in the face of all this drama.