British economy picks up momentum in August, growth still below potential, Niesr report shows

UK economy picked up slightly in the three months to August, albeit still well below potential, according to a macroeconomic forecaster, National Institute of Economic and Social Research.

GDP expanded by 0.4 per cent during the period after only managing a 0.2 percent expansion in the three months to July, according to an estimate by the National Institute of Economic and Social Research (Niesr).

However, growth remains sluggish by historical standards: Niesr estimates the UK economy’s potential rate, at which it can grow without inflation booming, at 0.6 per cent per quarter.

Growth in the first half of 2017 has been weaker than the three previous quarters, as consumer spending has come under pressure from rapidly rising inflation caused by the devaluation of sterling after the Brexit vote. Wages have failed to keep up with price rises, squeezing discretionary spending power.

Amit Kara, Niesr head of UK macroeconomic forecasting said, “Household spending is likely to be weighed down by weak wage growth and investment spending held back by Brexit-related uncertainty.”

Some relief from the drag on consumption could be given by an improvement in the global economy driving higher trade. Official trade figures, also published today by the Office for National Statistics, showed that export volumes rose by 1.2 per cent in the three months to July, albeit at a slower rate than imports.

Niesr forecasts a further small pick-up in growth in the third quarter overall, to match the 0.4 per cent rate seen in the three months to August.

Kara said, “Looking ahead into the second half of this year and beyond, we see the economy rebalance towards international trade in response to strengthening global growth and a weaker currency and away from domestic demand.”