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U.K. Consumers Drive Economic Growth as Business Spending Slows

Business investment slow as Brexit takes toll, net trade drags.

U.K. Consumers Drive Economic Growth as Business Spending Slows
An employee fits a wheel to a Land Rover Defender automobile at Tata Motors Ltd.’s Jaguar Land Rover vehicle manufacturing plant in Solihull, U.K. (Photographer: Chris Ratcliffe/Bloomberg)

(Bloomberg) -- Consumers drove the British economy in the third quarter as spending on cars rebounded but Brexit appears to be inflicting a toll on business investment.

Household spending rose 0.6 percent, the fastest pace in a year, the Office for National Statistics said on Thursday. But business investment slowed and net trade acted as a drag on growth. Overall GDP rose an unrevised 0.4 percent, up from 0.3 percent in the previous three months.

The report comes a day after Chancellor of the Exchequer Philip Hammond announced a downgrade to the economic outlook as a result of a sluggish productivity and Brexit headwinds.

U.K. Consumers Drive Economic Growth as Business Spending Slows

The Office for Budget Responsibility predicted the economy will grow 1.5 percent this year instead of the 2 percent envisaged in March and predicted growth will stay well below 2 percent through 2022.

The ONS said consumer spending was aided by renewed purchases of cars after changes to vehicle excise duty led people to bring forward spending to the first quarter.

Services, the largest part of the economy, rose an unrevised 0.4 percent with professional activities, including employment agencies, providing the biggest contribution.

Business investment rose 0.2 percent, the worst performance since the end of 2016, and net trade knocked 0.5 percentage points off growth as exports fell and imports rose.

While consumer spending rebounded from growth of just 0.2 percent in the second quarter, recent reports have highlighted the risk of a slowdown ahead of the crucial Christmas shopping period as the squeeze on incomes from inflation continues.

Figures last week showed retail sales fell in October from a year earlier, the first decline in more than four years.

On the output side, industrial production grew 1.1 percent in the third quarter but construction fell for a second straight quarter, declining 0.9 percent. Overall GDP rose an unrevised 1.5 percent from a year earlier, matching the weakest pace since early 2013.

To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net.

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Andrew Atkinson

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