Tough times for hotels and restaurants curb economy

GDP expanded by 0.7 per cent in the three months to September

Slower services growth sapped the recovery’s momentum in the third quarter of the year, according to official figures released yesterday.

GDP expanded by 0.7 per cent in the three months to September, the Office for National Statistics reported. That was down from 0.9 per cent in the second quarter.

Services in the three months grew by 0.7 per cent, down from 1.1 per cent previously, on the back of weaker retail sales. The rate of growth in the construction and production sectors stepped up slightly in the quarter.

The softer GDP figure was in line with City expectations and helped pushed the pound up around a quarter of a cent against the dollar. The reaction of analysts was generally positive. “With easing inflation providing a timely boost to real incomes, firms’ employment and investment intentions still strong, and private sector balance sheets in improved health, the recovery seems unlikely to suddenly stall,” said Samuel Tombs of Capital Economics.

But some analysts cautioned that the British economy is still vulnerable to a deterioration in economic conditions in the eurozone, which accounts for close to a half of all UK trade. They added that if the slowdown goes on, the Bank of England will probably be forced to delay its first interest rate rise further into next year. “If the mixed data continues to roll in, and if the eurozone shows no signs of renewed growth, this could push back rate hikes, perhaps beyond next year’s general election,” said Rob Carnell of ING.

Financial markets are currently pricing in the first quarter-point rise in the 0.5 per cent base rate to occur in the third quarter of next year, long after Britain is due to go to the polls. The Bank’s rate-setting Monetary Policy Committee voted by a margin of 7 to 2 to keep rates on hold earlier this month, with the latest minutes showing that most members were concerned by the impact of steep declines in global equity markets on the economic recovery.

The ONS estimated that construction output grew by 0.8 per cent in the quarter, up from 0.7 per cent in the three months to June. Production grew by 0.5 per cent, up from 0.2 per cent, largely on the back of a 6.5 per cent surge in energy supply. However, the growth rate in manufacturing slipped to 0.4 per cent, down from 0.5 per cent previously and the weakest expansion since early 2013. Analysts said this reflected weaker export demand from the eurozone.

Within services, the growth rate in the hotels and restaurant sector halved to 0.5 per cent. There was also a moderation in business services and finance growth from 1.5 per cent to 1 per cent.

The third quarter’s expansion has taken British GDP 3.4 per cent above its pre-crisis peak. But with the population growing by around 4 per cent since early 2008, GDP per capita is still below its level six years ago.