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Output marginally higher

‘Come back kid’ construction helps UK avoid recession

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Construction is the ‘come back kid’ says one analyst

Britain avoided recession with a 0.3% growth in output in the third quarter of the year, latest official figures show.

This follows a 0.2% contraction in the second quarter. A recession would be determined by contraction for two consecutive quarters.

GDP performance showed a 1% year on year increase against a forecast of 1.1%.

The Office for National Statistics said: “GDP grew steadily in the third quarter, mainly thanks to a strong July.

“Services again led the way with construction also performing well. Manufacturing failed to grow as falls in many industries were offset by car production bouncing back following April shutdowns.

“Looking at the picture over the last year, growth slowed to its lowest rate in almost a decade.

“The underlying trade deficit narrowed, mainly due to growing exports of both goods and services.”

Gareth Belsham, director of the national property consultancy and surveyors Naismiths, commented: “Construction has emerged as the economy’s ‘come back kid’. After months of flat or falling output, the sector came out swinging in the third quarter.

“While the huge size of Britain’s service sector means it must take the bulk of the credit for dragging the economy back to growth, construction deserves plaudits for pulling off the most Houdini-like turnaround.

“Activity is growing strongly, and the growth is refreshingly broad-based – with new infrastructure, commercial and residential building all up.

“What we’re seeing is a gradual uncorking of some of the demand which has been repressed for months or even years.

“This is no opening of the floodgates, but they are ajar – and deals are beginning to flow once again.”

Despite heading off recession, some analysts believe that unless there is stronger growth the Bank of England may cut interest rates.

Howard Archer, chief economic adviser to EY’s Item Club, said: “if the Bank of England does act on monetary policy in 2020, it now looks most likely to be to cut interest rates from 0.75%. However, we currently lean towards the view that interest rates are most likely to stay at 0.75% through to 2021.”    

Commenting on the slow rate of growth, Schroders’ Senior European Economist and Strategist, Azad Zangana, said: “It is worth mentioning that the government has not helped matters. General government investment contracted 1.8% in real terms in the latest release, having contracted by 3.6% in the second quarter. 

“Overall, the data suggests that the economy is coping with the uncertainty from Brexit. Households continue to spend, though businesses remain cautious. Leading indicators suggest the economy will slow further in coming months as external headwinds start to hit the economy.

“The rest of the data remains heavily distorted by Brexit stockpiling and destocking.”

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