Surprise: BoE will not raise interest rates in January

From Deirdre Kelly, BBC Britain’s economic recovery was slower than previously thought in the third quarter, official figures show. The Office for National Statistics (ONS) said growth slowed to 0.4% in the July-September period….

Surprise: BoE will not raise interest rates in January

From Deirdre Kelly, BBC

Britain’s economic recovery was slower than previously thought in the third quarter, official figures show.

The Office for National Statistics (ONS) said growth slowed to 0.4% in the July-September period.

It was slightly lower than the 0.5% in the previous three months and less than the 0.6% from a year earlier.

The Bank of England has said it will keep interest rates on hold until next spring.

The figures show that Britain’s economic growth rate has fallen below 1% for the first time since the first quarter of 2015.

“It is a worry that we are seeing such a widespread slowdown and evidence of slowing investment by businesses,” said Graeme Leach, chief economist at the Institute of Directors, which represents more than 85,000 U.K. firms.

What are the most recent quarterly GDP figures?

The decline in the recent quarter was led by an unexpected fall in growth in household spending, which dropped by 0.5% on a quarterly basis.

Other activity like manufacturing and construction also shrank, as did the service sector.

Last week, the Chartered Institute of Purchasing and Supply, an industry body, said its purchasing managers’ index for the services sector fell to a two-year low in November, indicating that activity had slowed.

In fact, the UK economy had its weakest showing since 2013 in the second quarter.

Economists were expecting that there would be a return to expansion in the third quarter, according to a Reuters poll.

Most said, however, that there was a “bit of summer wobble” in the third quarter, with consumer demand falling.

Experts said consumer spending was an area of concern, after a run of softer spending figures.

However, surveys have pointed to better Christmas trading as retailers get ready for a big shopping season.

The ONS also revised up the amount of growth in the second quarter to 0.6% from 0.5%, after two of the final three months were revised up.

However, it expects GDP growth to be little changed in the fourth quarter, for an annual expansion of 2.2%.

Official growth figures are based on a three-month rolling average.

What are other indicators saying?

James Knightley, chief international economist at ING Bank, said the data suggested “that the recession that we had originally anticipated is less certain than the MPC (Monetary Policy Committee) currently believe”.

Paul Hollingsworth, U.K. economist at Capital Economics, said there would be “vigorous criticism” from some economists of the ONS figures.

“Business surveys are already pointing to a slowdown in growth in the fourth quarter and this GDP data adds to our concerns,” he said.

“But with data from the services sector, the biggest part of the economy, not due until next week, the official estimates will be subject to some revision.”

What do economists say?

“I don’t think there’s any question that a slowdown in growth reflects weak consumer demand,” said David Tinsley, U.K. economist at BNP Paribas.

“The triple whammy of higher inflation, weaker growth and weaker consumer confidence have all conspired to weigh on real incomes over the last few months and we’re seeing it in the weakness of consumer spending.”

But economists said the Bank of England should not be unduly alarmed about the softening of growth.

The Bank’s policymakers are expected to hold interest rates at 0.25% when they next meet in January.

Economists said Bank governor Mark Carney had sounded relatively optimistic in November about the economy.

“Mark Carney has done a sterling job of not being too gloomy about the UK’s growth prospects,” said Ms Leach.

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