Britain is on track to avoid a recession despite mounting Brexit uncertainty after official figures showed an unexpectedly strong jump in economic growth over the summer.
The Office for National Statistics said gross domestic product had risen by 0.3% in the three months to the end of August, beating the forecasts of City economists, helped by the strength of the services sector and a boom in TV and film production across the country.
Against a backdrop of mounting political chaos, economists said the latest snapshot showed that while economic growth remained weak, Britain was likely to avoid its first recession since the financial crisis. Fears of a technical recession – two consecutive quarters of contraction – had been raised when data published in August showed the economy had unexpectedly contracted in the second quarter, by 0.2%. Official growth figures for the third quarter are expected in early November.
Ian Stewart, chief economist at the accountancy firm Deloitte, said: “The economy has regained some momentum but the underlying trend is towards softer growth. The headwinds from a major global slowdown and uncertainty at home point to weaker growth ahead.”
In a sign of weakness in the economy, GDP contracted by 0.1% in August as activity in the dominant service sector stalled and factory output plunged as the Brexit deadline nears with little sign of a deal with Brussels.
However, the ONS cautions that single-month growth rates can paint an unreliable picture of economic strength, as they can be prone to revision as more data from the economy becomes available over time. Growth in both June and July was revised up by the ONS by 0.1 percentage points, lifting the three-month rate.
The ONS said GDP would need to plunge by at least 1.5% in September for the economy to contract in the third quarter. Such falls are considered extreme and rare, with comparable drops recorded only twice in the past 20 years.
Gross domestic product (GDP) measures the total value of activity in the economy over a given period of time.
Put simply, if GDP is up on the previous three months, the economy is growing; if it is down, it is contracting. Two or more consecutive quarters of contraction are considered to be a recession.
GDP is the sum of all goods and services produced in the economy, including the service sector, manufacturing, construction, energy, agriculture and government. Several key activities are not counted, such as unpaid work in the home.
The ONS uses three measures that should, in theory, add up to the same number.
• The value of all goods and services produced – known as the output or production measure.
• The value of the income generated from company profits and wages – known as the income measure.
• The value of goods and services purchased by households, government, business (in terms of investment in machinery and buildings) and from overseas – known as the expenditure measure.
Economists are concerned with the real rate of change of GDP, which accounts for how the economy is performing after inflation.
Britain's government statistics body, the Office for National Statistics, produces GDP figures on a monthly basis about six weeks after the end of the month. It compares the change in GDP month on month, as well as over a three-month period.
The ONS warns that changes on the month can prove volatile, preferring to assess economic performance over a three-month period as the wider period can smooth over irregularities.
The most closely watched GDP figures are for the four quarters of the year; for the three months to March, June, September and December.
The figures are usually revised in subsequent months as more data from businesses and the government becomes available.
The ONS also calculates the size of the UK economy relative to the number of people living here. GDP per capita shows whether we are actually getting richer or poorer, by stripping out the impact of population changes.
Richard Partington
Among the pockets of strength for the economy in the three months to August, the service sector grew by 0.4% after a largely flat period of growth in the previous three months.
Films, TV and music provided the largest contribution to GDP growth over the period, as one of the strongest performing sectors over the last year, expanding at a faster rate than the services sector as a whole.
The growth comes after several hits for film and TV production in the UK in recent years, including the BBC hit series Peaky Blinders and Paddington 2. Figures from the UK TV industry trade association Pact show revenues in the sector have risen by 40% since 2008 to £3bn last year, with help from drama commissions as well as Netflix and Amazon series.
Factory output fell by 1.1% in the three months to June, in a sign of continuing gloom for manufacturers. The ONS said car production was gradually bouncing back from a slump in April when manufacturers brought forward their shutdowns around the original March Brexit date as a precaution, although it warned the longer-term picture was for weakening growth in production.
The construction industry barely grew in the three months to August, with output rising by 0.1%, helped by the building of new homes, after a 0.9% slide in the three months to July.
The National Institute of Economic and Social Research (NIESR), Britain’s oldest independent economic research organisation, is forecasting growth of 0.5% in the third quarter and 0.3% in the final three months of the year.
Such a growth rate would be consistent with the economy expanding by 1.3% for the year as a whole, down slightly from 1.4% in 2018 and 1.9% in 2017, in a reflection of a weaker pace of growth since the Brexit vote and as the world economy slows.
Garry Young, director of macroeconomic modelling and forecasting at NIESR, said: “Despite better than expected GDP data, the underlying pace of growth in the UK is slow.”
