UK’s economy advances the most in two years

The UK’s economy was seen expanding in the third quarter, posting the fastest pace of increase in nearly two years. The expansion in the economy was surprising as the UK’s gross domestic product outperformed quite a few countries in the Eurozone amid a broad slowdown in the economic bloc.

Despite the fast pace of increase, data showed that the UK’s economy had lost momentum during the summer months. The data underscored the fact that growth in the UK is likely to falter in the coming months. This is expected as the UK heads into the final months of the Brexit transition period. The UK is expected to formally part ways with the EU in March next year.

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Official data released last week by the UK’s Office of National Statistics showed that the economy advanced at a pace of 2.5% on an annualized basis in September 2018. This was the fastest pace of increase since the last quarter of 2016, according to the ONS.

On a quarterly basis, the UK’s economy grew just 0.6%. This was in line with estimates and the third quarter GDP was seen accelerating from 0.4% growth posted in the second quarter.

Driving the GDP growth higher was an increase in both consumer spending and in trade factors. The UK’s exports picked up alongside a decline in imports, particularly automobile imports which fell amid the new emission tests that hit the carmakers and production lines in Europe.

However, business investment was seen falling on the quarter as it underscored the uncertainty about the UK’s future ties with the European Union after Brexit. This put a lid on corporate spending resulting in weaker business investment.

In the third quarter, UK’s growth surge pushed it to one of the best performing economies in the European Union. UK’s GDP growth was seen outperforming that of France and Italy.

The slowdown in the economy for the Eurozone saw one of the worst GDP expansions on the quarter since 2013. The Eurozone’s economy advanced just 0.6% in the third quarter as it reflected the slowdown in exports and cooling economies overseas leading to slower demand. Domestic issues such as Italy’s deficit crisis was also seen dampening the outlook.

While the UK’s economy managed to enjoy the side effects of the car emission tests, the same posted a drag on the Eurozone’s economy.

Germany, the EU’s leading economy, is expected to see a weak reading of economic growth during the third quarter and is expected to release its quarterly GDP report this coming week.

Meanwhile, the U.S. economy maintained its lead as the economy was seen advancing 3.5% during the same period.

The positive beat on the data comes as the UK is seen currently engaging with the EU on Brexit. Various gridlocks remain as both parties attempt to overcome the hurdles to agree on the terms of the UK’s withdrawal from the European Union.

The Brexit deadline is March 2019 which puts the British government under pressure to confirm an exit deal. Various points including trade and border issues are yet to be resolved. The Bank of England which held its monetary policy meeting just a few weeks ago held interest rates steady.

The central bank signaled that in the event of a Brexit with no deal, the central bank will have to raise rates in order to contain inflation. The UK’s interest rates currently stand at 0.75%.

Recent data from the economy in the UK suggested that the third quarter GDP was perhaps the peak in the economic growth. Various forward-looking indicators point to the fact that activity could start to weaken during the fourth quarter.

Forecasts estimate that the UK’s economy could grow at an annualized pace of just 1.4% in 2018 marking a slower pace of growth compared to 1.7% GDP growth in 2017.