Third quarter GDP growth held back by record drag from trade

The trade blow was blamed on a stronger pound and a much more uncertain global climate

John Lewis and other stores enjoyed record takings as the public finally flocked to the shops (Reuters)

The economy relied on shoppers and businesses to drive the recovery between July and September as the UK faced a record trade headwind, official figures showed yesterday.

The pace of overall growth in the third quarter remained unchanged at 0.5 per cent, down from 0.7 per cent between April and June and in line with the first estimate from the Office for National Statistics (ONS).

But its latest figures underlined the domestically driven nature of the recovery despite the Government’s long-held ambitions to boost the UK’s trade performance. Net trade – exports less imports – knocked 1.5 percentage points off overall growth, the biggest setback since the ONS began collecting the figures in 1997.

The trade blow was blamed on a stronger pound and a much more uncertain global climate, with exports rising 0.9 per cent but imports surging by 5.5 per cent – the biggest rise over a single quarter since 2006. “Key export markets remained in the doldrums and the strong pound hit competitiveness,” said Chris Williamson, chief economist at the financial data provider Markit.

In contrast to the poor trade performance, consumer spending – accounting for nearly two-thirds of the economy – grew 0.8 per cent over the quarter as shoppers benefited from near-zero inflation. Business investment spending also showed an encouraging 2.2 per cent advance between July and September and is now 6.6 per cent ahead of the same period last year.

The British Chambers of Commerce called the trade figures “concerning”, while Lee Hopley, chief economist at the EEF manufacturers’ association, said: “Modest export growth [was] swamped by a massive bounce in imports.

“This looks like the pattern of growth we can expect over the next few years, with spending by households and capital investment remaining the key economic players.”

Other experts pointed out the volatile nature of the trade figures – which added 1.4 percentage points to growth in the previous quarter – but said there was unlikely to be a sudden surge in exports.

Sam Hill, senior UK economist at RBC Capital Markets, said: “It is difficult to expect a positive net export contribution on average. Domestic income growth is likely to keep the UK’s import propensity high, while softer overseas demand and a strong exchange rate weigh on export prospects.”

The ONS figures also showed overall growth 2.3 per cent higher than a year earlier – down from 2.4 per cent between April and June and a sharp slowdown from last year’s rapid 2.9 per cent rate.