UK business investment contracted for second consecutive quarter - ABN AMRO

Assessing today's macroeconomic data releases from the United Kingdom (UK), "UK GDP grew 0.3% in the third quarter, a bit weaker than consensus (0.4%) but better than our forecast (0.1%)," noted ABN AMRO Senior Economist Bill Diviney.

Key quotes

"As we had expected, business investment contracted for the second consecutive quarter, while private consumption picked up a notch to 0.4%, from 0.3% previously – still well below the pre-referendum period, when consumption was growing at 0.8% qoq on average. The positive surprise came in net exports, which made a significant contribution of 1.2pp, following a 2.5pp contribution in Q2. This strength looks unsustainable, and we expect payback in the coming quarters."

"More importantly for the medium term outlook, UK macro fundamentals are very weak. Investment has essentially been at a standstill for the past two years, as businesses remain paralysed by Brexit uncertainty. Things are scarcely better on the household side; while consumer confidence has held up better than business confidence, and real wage growth has picked up, household balance sheets are in a parlous state, with household debt not far off pre-recession highs at 90% of GDP, and the savings rate just shy of historically low levels."

"This makes households highly vulnerable to any downturn. With that said, both major parties in the coming election are promising big increases in government spending over the coming years, and as such, near-term growth should see support from a bigger fiscal impulse, whatever the outcome. All told, we continue to expect growth this year of 1.2%, and for this below-trend rate to be maintained in 2020."