Britain's economic recovery slowed more than expected in the three months to September after a slump in construction, raising the prospect that more than two years of relatively rapid economic growth is coming to an end. The economy grew 0.5 per cent in the third quarter, official figures showed on Tuesday - a respectable rate by historic standards but below the 0.7 per cent seen in the second quarter and economists' expectations for the third. Year-on-year growth fell to a two-year low of 2.3 per cent, after recording its fastest growth since 2005 last year at 2.9 per cent, outstripping all other major advanced economies.
Earlier this month the International Monetary Fund forecast growth for 2015 overall would slow to 2.5 per cent. That would still be faster than most developed nations and around Britain's historic average. Many economists viewed Tuesday's figures as consistent with this type of modest slowdown - rather than heralding a sharper contraction linked to China's stock market turmoil - and financial markets' reaction to the data was muted.
"The UK economy's momentum has begun to ease in light of increasing uncertainty and a weaker global environment, as we expected, but remains decent," Barclays economists said in a note to clients.
Growth was almost entirely driven by Britain's dominant services sector, which picked up pace from the second quarter, while manufacturing shrank for a third quarter in a row and construction suffered its biggest contraction in three years.
Britain's economy as a whole is now more than 6 per cent larger than before the financial crisis, but neither the manufacturing nor the construction sectors have returned to pre-crisis levels of activity.
Moreover, some private-sector data have suggested the economy is facing stronger headwinds in the final three months of the year, particularly export-focused sectors vulnerable to sterling's strength and a slowdown in emerging markets.
REVISIONS
The Confederation of British Industry reported the biggest quarterly fall in factory orders for three years on Monday in the three months to October. Surveys of purchasing managers pointed to fourth-quarter GDP growth of just 0.3 per cent if they do not improve.
That said, the outsize fall in construction output this quarter, which statisticians partly blamed on a wet August, left some economists hopeful GDP could be revised up, as construction data are revised more than other sectors.
The Bank of England has forecast that after revisions third-quarter GDP growth will creep up to 0.6 per cent. It will publish new economic forecasts next week.
BoE policymakers are unlikely to rush into raising interest rates from their record-low 0.5 per cent.
Governor Mark Carney has said a decision will come into sharper focus at the turn of the year, and a Reuters poll on Monday showed economists had pushed back their forecasts for a hike to the second quarter of next year from the first.
"The slowdown in UK growth is by no means a disaster, but it will put pressure on the Bank of England to delay the first rate hike, especially as inflation remains in negative territory," Schroders economist Azad Zangana said, predicting a May 2016 move.British economic growth slowed more than expected in the three months to September after the biggest fall in construction in three years, raising the chances that a period of rapid economic growth is coming to an end.
Third-quarter gross domestic product growth slowed to 0.5 per cent, from 0.7 per cent in the three months to June, a bigger slowdown than economists' forecasts of a small drop to 0.6 per cent, the Office for National Statistics said on Tuesday. Output was 2.3 per cent higher than a year earlier, compared with a forecast for it to sustain the second quarter's 2.4 per cent rate of growth, and the smallest increase in two years.
Britain's economy was the fastest growing in the G7 group of advanced economies in 2013 and 2014, as it caught up some of the ground it lost after the financial crisis. Reuters
But earlier this month the International Monetary Fund forecast growth would slow to 2.5 per cent this year, closer to Britain's long-run average.
The latest growth figures may also give pause for thought to the Bank of England, which had also forecast that the economy would grow by 0.6 per cent in the third quarter.
Economists in a Reuters poll on Monday had pushed back their average expectation of when the BoE would start to raise interest rates to the second quarter of 2016 from the first.
Although the biggest economic worries over the quarter centred on a stock market tumble in China, the main driver for the fall in British GDP was a 2.2 per cent decline in the domestic construction industry.
The ONS said that unusually wet weather in August may have played a role, and that its quarterly estimate assumed that growth in the sector had bounced back by 1.3 per cent in September.
The ONS's preliminary estimate of GDP growth is based on less than half the actual data that will go into the final estimate published in a couple of months' time.
Services output -- the largest part of the economy and by far the biggest contributor to growth -- continued to grow strongly, rising by 0.7 per cent on the quarter, its strongest performance since the last quarter of 2014.
Manufacturing output dropped by 0.3 per cent on the quarter and has contracted for three quarters in a row, but overall industrial output was supported by growth in oil production due to fewer maintenance shutdowns than in previous years.
Earlier official data had shown a slowdown in industrial output in August as well as a chunky fall in construction. A subsequent private-sector survey have showed the biggest drop in industrial orders in three years as overseas demand falters.
However, consumer demand has remained solid, with retail sales growing more strongly in the third quarter of the year than in the second.
