October 2018 GDP Tracker

Our monthly GDP Tracker suggests that the economy will expand by 0.7 per cent in the third quarter of 2018 and by 0.5 per cent in the final quarter of this year.

Figure 1: UK GDP growth (3 months on previous 3 months, per cent)

Main points

• Latest economic data confirms that the UK economy has recovered from a soft patch earlier in the year and is now growing at a pace that is well above potential.

• According to new ONS statistics published this morning, the UK economy expanded by 0.7 per cent in the 3 months to August after growing by 0.4 per cent in the second quarter (three months to June). The outturn was slightly higher than the 0.6 per cent monthly GDP forecast that we published last month for the same period and the error is partly because of back data revisions. Building on the official data, our monthly GDP Tracker suggests that the economy will expand by 0.7 per cent in the third quarter and by 0.5 per cent in the final quarter of this year. 

• The biggest surprise was from the production sector and, in particular, manufacturing output which expanded by 0.8 per cent. This strength was across the board and the outturn was above our forecast for the same period, partly because of changes to the back data.  

Amit Kara, Head of UK macroeconomic forecasting, said “The economy has rebounded from the weather-related disruption in the first quarter to a pace that is considerably faster than our estimate of potential. This comes at an opportune moment for the Chancellor just days ahead of the Budget and also gives him room to consider additional spending in line with our recommendations. At the same time, these numbers raise the prospect of an early policy rate increase by the Bank of England. Our forecast, which is conditioned on a soft Brexit scenario, is for a 25bp rate increase in February next year and now appears more likely.

On our forecast, the economy expands by 0.7 per cent in the third quarter and by 0.5 per cent in the final quarter. This amounts to a growth rate of 1.5 per cent in 2018 as a whole.”

Please find the full commentary in attachment.