UK suffers World Cup hangover

Bild: Unsplash
Bild: Unsplash

The UK economy stalled in August after a strong July. Azad Zangana from Schroders ponders, wether the Brexit fears might be slowing down growth.

10.10.2018, 14:35 Uhr

Redaktion: ase

The Office for National Statistics (ONS) reported that the UK economy grew by 0.7% in the three months to August compared to the previous three months. This was slightly better than the Thomson Reuters consensus of 0.6% growth. The figures show a strong rebound from the start of the year, when heavy storms disrupted travel, construction and logistics.

However, the details of the latest set of figures are less promising for the near future, thinks Azad Zangana, Senior European Economist and Strategist at Schroders. Monthly growth in August fell to zero compared to a strong 0.4% expansion in July. The World Cup may have encouraged spending during July, but the party ended abruptly the following month, he assesses. This is supported by the latest retail sales figures which show the volume of sales slowing from 0.9% month-on-month in July to just 0.3% in August.

UK real GDP growth falls flat in August



Weaker growth for every sector in August
Within the details of the report, every major sector saw some deterioration in growth in August. Growth in services activity was flat in August, down from 0.3% in July, while construction output contracted by 0.7% compared to 0.5% growth previously. The production sector in aggregate grew by 0.2% (down from 0.4%), but the manufacturing subsector contracted by 0.2% (previously flat).

Are Brexit fears weighing on growth?
Overall, the headline GDP figures mask some underlying weakness, warns Zangana. On a quarterly basis, even if GDP stalls again in September, growth for the third quarter would be 0.6%, which would be the best quarter of growth since the end of 2016. However, it would mean potentially a weak end to the year, he expects.

In his last look at the expenditure breakdown of GDP, Zangana found that final sales were actually in recession, as final demand had not kept up with output, meaning that the economy was building inventories. The lack of growth in August may be in response to this. Then again, it could also be in response to the rise in fear over a no-deal or cliff-edge Brexit following the announcement of the government's Brexit proposals, contemplates Zangana. If the slowdown is Brexit-related, then it is according to Zangana likely to have persisted through September, and could potentially last for a few more months yet.

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