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Households prop up UK growth again, firms more cautious

Published 11/23/2017, 05:39 AM
Updated 11/23/2017, 05:40 AM
© Reuters. Houses are seen in London

© Reuters. Houses are seen in London

By William Schomberg and Alistair Smout

LONDON (Reuters) - Britain's economy remained reliant on spending by households, despite the squeeze on their finances, while business investment grew slowly, suggesting caution among companies ahead of Brexit, official data for the third quarter showed.

Britain's overall economic growth sped up moderately in the third quarter to 0.4 percent from 0.3 percent in the second quarter, the Office for National Statistics said on Thursday, confirming a preliminary reading.

The breakdown of the data showed spending by households drove the economy once again even as they suffered a hit to their incomes from slow wage growth and a jump in inflation that followed the 2016 Brexit vote, prompting a rise in borrowing.

On Wednesday, Britain's budget watchdog took an axe to its economic growth forecasts for every year into the early part of the next decade as it chopped its projections for productivity growth, the Achilles heel of the economy. [nL8N1NS25X]

In annual terms, Thursday's data showed the economy grew by 1.5 percent in the third quarter, unchanged from the second quarter but the joint weakest growth in more than five years.

"The UK economy owes everything to the over-stretched consumer," said Jeremy Cook, chief economist at money transfer company WorldFirst.

Howard Archer, an economist at EY Item Club, a forecasting firm, said the squeeze on consumers should ease in 2018 when inflation is expected to fall back, but that uncertainties about Brexit were likely to weigh further on business investment.

Household spending grew at a quarterly rate of 0.6 percent, up from 0.2 percent in the second quarter, to show the fastest increase in a year, despite the income squeeze, the ONS said.

The ONS said spending on transport rose, helped by a recovery in car sales which had been weak in the second quarter after a tax increase.

But businesses upped their investment by only 0.2 percent in the three months to September, the weakest pace so far in 2017.

The ONS also said Britain's trade deficit weighed on the economy, despite the fall the value of the pound which some supporters of Brexit have said would give a boost to exporters.

© Reuters. Houses are seen in London

The Bank of England, which raised interest rates for the first time in a decade earlier this month, hopes that stronger growth among manufacturers will bolster the economy as it faces the challenge of Brexit.

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