United Kingdom growth estimate gets a surprise downgrade

The changes left annual growth in third quarter at 2.1 per cent, down from a previous estimate of 2.3 per cent. Downward revisions to the finance industry explained the shift in the estimate for the latest period from the second quarter, while inventories led to the amendment for the reading for the three months through June.

Gross domestic product (GDP) expanded by 0.4 percent in the July-September period, down from previous estimates of 0.5-percent growth, the Office for National Statistics said in a statement.

Ruth Miller, UK economist at Capital Economics in London, said the figures showed that “the economic recovery has less momentum than previously thought and still looks worryingly unbalanced”.

The Bank of England held its benchmark interest rate at a record-low 0.5 per cent this month and officials have indicated they are in no hurry to follow the Federal Reserve, which raised the key USA rate for the first time in nearly a decade last week.

The new lower assessment of growth has been blamed on weaker growth in the services sector, especially in financial services.

Kallum Pickering, senior United Kingdom economist at Berenberg, said the economy had ended 2015 on a “sour note”.

“We suspect that stronger United Kingdom economic growth, a renewed pick up in earnings growth and consumer price inflation gradually trending up will prompt the MPC to act around May”, he said.

With growth in the second quarter also revised down – from 0.7% to 0.5% – the annual rise in GDP in the year to the end of September has been trimmed from 2.3% to 2.1%.

The revised figures mean the United Kingdom economy has grown by 6.1% above its pre-crisis peak, compared with an earlier estimate of 6.4%.

More positive figures came in the form of real household disposable income, which increased by 0.5% between Q2 and Q3 this year. Many analysts expect the central bank to raise interest rates in May. The UK’s current account deficit for the UK – the amount of money flowing into the country versus how much is going out – was much stronger than forecast. The deficit equated 3.7% of GDP.