Christmas has come early with the ONS revising up GDP growth in Q3 from 0.3% to 0.4% in its annual data deluge before the festive break. But the festive cheer will probably be short-lived seeing as that was driven by a larger boost to net trade than in the previous figures which we know has already started to unwind. The underlying picture is still that there is very little momentum in the economy.
GDP revised up in Q3 but economy still lacking momentum
- Christmas has come early with the ONS revising up GDP growth in Q3 from 0.3% to 0.4% in its annual data deluge before the festive break. But the festive cheer will probably be short-lived seeing as that was driven by a larger boost to net trade than in the previous figures which we know has already started to unwind. The underlying picture is still that there is very little momentum in the economy.
- Household spending growth was actually revised down from 0.4% q/q to 0.3% q/q in Q3. Despite that, the household saving ratio fell from 6.0% to 5.4%, suggesting the softening in the labour market is feeding through to households’ real incomes. Quarterly business investment growth was unchanged at 0.0%.
- Instead, it was a larger boost from net trade that pushed up GDP growth. An upward revision to exports caused the current account deficit to narrow from £24.2bn in Q2 to £15.9bn in Q3 and pushed up the contribution to quarterly GDP growth from net trade excluding valuables (principally trade in gold bullion) from the original Q3 estimate of 0.9ppts to 2.0ppts. That was partially offset by a larger drag from stockbuilding, which was revised from -0.4ppts to -1.1ppts of GDP. (See Chart 1.)
- This net boost won’t be sustained. It reflects a faster recovery in exports than imports in Q3 from a Brexit-deadline driven dip in Q2 as firms brought trade forward into Q1 from Q2. (See Table 1.) Indeed, the monthly data for October show that imports have now also recovered.
- In other data out this morning, the government borrowed £5.6bn in November, up only marginally from £5.3bn a year earlier. That’s an improvement on the 11.3% increase in borrowing in the fiscal year to date. But the Spending Round and likely further stimulus in a forthcoming Budget means the deficit will rise again in 2020/21.
- Of course, all this backward-looking news is less important than the timelier data which suggest that the economy may have done no better than flatline in Q4. And whatever happens, Brexit uncertainty looks set to persist. As a result, the latest national accounts do not change our view that the economy will grow by about 1.0% next year, rising to 1.8% in 2021.
Chart 1: Net Trade & Stockbuilding (Contribution to q/q GDP, ppts)
Sources: Refinitiv, ONS, Capital Economics
Table 1: GDP by Expenditure (Components of GDP, % q/q Unless Stated)
Fix. Capital Formation
Stockbuilding(Cont. to Growth1)
Sources: Refinitiv, Capital Economics, 1Excluding alignment adjustment
Andrew Wishart, UK Economist, +44 20 7808 4062, email@example.com