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UK Economic Momentum Continued In Q3


The UK economy likely maintained its growth momentum in the third quarter, largely underpinned by a rebound in manufacturing that grew at the fastest pace in six months in August.

The trade data and construction output figures also released on Tuesday, were less encouraging, suggesting that the Bank of England cannot rule out a rate hike for now.

Manufacturing output grew 2.8 percent year-on-year in August after 2.7 percent gain in July, data from the Office for National Statistics showed Tuesday.

Economists had expected a 1.9 percent increase. The rate of growth was the sharpest since February, when output rose 3.1 percent.

The ONS noted that there was broad-based strength throughout the sector, with 11 of the 13 sub-sectors increasing.

Overall industrial production rose 1.6 percent annually following 1.1 percent increase in the previous month. Economists had forecast a 0.9 percent gain. The pace of growth was the strongest since March.

Mining and quarrying output declined 6 percent from a year ago, dragged down by a 7.8 percent slump in oil and gas extraction, which was mainly due to maintenance activities.

On a month-on-month basis, factory output rose 0.4 percent, same as in the previous month. Output grew for the fourth straight month.

Industrial production increased 0.2 percent following 0.3 percent growth in July.

Separately, the ONS released construction output data for August that revealed an annual increase of 3.5 percent and a monthly gain of 0.6 percent.

Economists had expected an increase of 0.2 percent and a zero growth, respectively. The monthly gain was the first in three months.

Capital Economics' Paul Hollingsworth said the industrial sector is likely to expand 0.8 percent in the third quarter, reversing a 0.3 percent contraction seen in the three months to June.

The economist pointed out that the construction sector may have entered a recession. That said, the combination of construction and the industrial sector, which account for about 20 percent of overall GDP, look set to boost growth by 0.15pp in the third quarter.

"If the services sector puts in a similar performance to that in Q2, as the surveys suggested, then quarterly GDP growth could come in at around 0.4 percent," Hollingsworth added.

The foreign trade figures from the ONS showed that the overall trade deficit widened to GBP 5.62 billion in August from GBP 4.23 billion in July. The figure was the biggest in eleven months.

The visible trade deficit increased to a record high EUR 14.24 billion from EUR 12.82 billion in the previous month. Economists had forecast GBP 11.15 billion shortfall.

In volume terms, goods imports surged 4.2 percent from the previous month, while exports grew just 0.7 percent.

Elsewhere on Tuesday, the Office for Budget Responsibility announced that it is likely to significantly downgrade its UK productivity forecast for the next five years, citing the continued disappointing outturns, together with the likelihood that heightened uncertainty will continue to weigh on investment.

by RTTNews Staff Writer

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