No chancellor can resist the thought of a superb photograph alternative and Philip Hammond selected a brewery to mark the discharge of Britain’s newest development figures. As he pulled a pint for the cameras, the chancellor’s message was that the strongest enlargement in virtually two years was proof of the underlying well being of the financial system. It was no such factor. This was a glass primarily stuffed with froth.
On the face of it, the financial system has been choosing up pace all through 2018. Progress was 0.1% within the first quarter, 0.4% within the second quarter and has now hit 0.6% within the third quarter. However what really occurred was that dangerous climate within the first few months of the 12 months artificially depressed exercise and this weak spot has been adopted by a interval of catch-up, particularly within the development sector.
On prime of that, a mixture of a summer time heatwave and England’s surprising progress within the World Cup boosted retail spending in July, the primary month of the third quarter. In each August and September, the financial system flatlined and forward-looking surveys recommend a slowdown to 0.2-0.3% within the remaining three months of the 12 months. Spending within the excessive road and on-line fell again after the summer time surge, which both signifies that shoppers are saving their cash for a Christmas spree or that retailers are in for a depressing festive season. Both means, the third quarter was nearly as good because it will get for now.
Nor does the breakdown of the flash GDP estimate help Hammond’s argument that the financial system is in tip-top form. Enterprise funding fell by 1.2%, the third quarterly decline in a row. That has not occurred for the reason that monetary disaster of a decade in the past, with the inescapable conclusion that Brexit uncertainty is resulting in corporations deferring spending whereas the negotiations drag on.
One encouraging side of the GDP knowledge was that commerce contributed 0.eight share factors to development within the third quarter. Once more, although, this was barely illusory since imports of vehicles have been considerably depressed by EU emissions assessments.
Whereas UK development accelerated within the third quarter, development within the eurozone went within the different path, halving from 0.4% to 0.2%. Italy went sideways, whereas it appears to be like doubtless that figures subsequent week will present a small decline in German exercise.
The underlying image, nevertheless, is comparable. Progress within the UK has been modest for a decade regardless of the colossal quantity of stimulus offered by the Financial institution of England. The identical applies to the eurozone, the place the impression of the European Central Financial institution’s activity-boosting measures is now fading. It wouldn’t take a lot – on both facet of the Channel – to show fragility into one thing an entire lot worse.